Robust house price hikes continue in Malta
July 07, 2019
House price increases were felt across all property types:
- Apartment prices rose by 11.02% on average during the year to Q1 2019. When adjusted for inflation, prices were up by 9.7%.
- Terrace house prices rose by 15.34% (13.96% inflation-adjusted).
- Maisonettes prices rose by 7.82% y-o-y (6.54% inflation-adjusted).
- "Other houses", consisting of townhouses, houses of character and villas, experienced the highest price surge of around 15.96% y-o-y (14.58% inflation-adjusted) during the year to Q1 2019.
Malta's buoyant house price rises over the last five years have been supported by a number of factors (according to the CBM's 2018 annual report - Malta's fast growing economy, which enjoyed an average growth of 9.6% in 2014 and 2015, followed by 6.3% from 2016 to 2018. Plus:
- low-interest rate environment;
- buoyant disposable income; and
- the rising number of foreign workers in the country.
Prices were also boosted by government measures including the exemption of first-time property buyers from a 3.5% stamp duty on the first €150,000 of a new property´s value. In 2018, another scheme was introduced, making second-time buyers eligible for a stamp duty refund of up to €3,000 if they plan to replace their current residential homes. Second-time buyers are not eligible if they own any other property, or are upgrading to a luxury villa. Homeowners with disabilities can avail a higher stamp duty refund of up to €5,000.
The upswing of house prices in recent years is no doubt also due to the Individual Investor Programme (IIP) targeting high net worth individuals, introduced in the government´s November 2013 budget.
From 2000 to 2007, the Maltese property market enjoyed strong growth, with the overall house price index rising by 78.9% (53.4% inflation-adjusted):
- Terraced houses saw the largest price increase of 105.3% (76% inflation-adjusted)
- Apartment prices rose by 83.3% (57.1% inflation-adjusted)
- Maisonettes prices increased by 81.4% (55.5% inflation-adjusted)
- Townhouses and villas rose by 71.9% (47.4% inflation-adjusted)
Malta´s housing boom peaked in the second quarter of Q2 2004 with an amazing 36.73% y-o-y house price rise. The boom was set off by low interest rates, which had an extraordinarily strong effect, boosting residential mortgage debt from only 19.6% of GDP in 2002, to 34.6% of GDP in 2006, and to 40.9% of GDP in 2017.
A supporting factor was the Investment Registration Scheme, a tax amnesty for Maltese residents with overseas assets, effective from 2001 to 2005. The house price rises continued at a gentle pace from 2005 to 2007.
Then, like other European countries, Malta was hit by the global financial crisis of 2008. Malta is dependent on foreign trade and tourism, and Malta´s economy experienced a 2.4% contraction in 2009. The house price index dropped by 4.4% (-9.1% inflation-adjusted) in 2008, 1.4% (-1.1% inflation-adjusted) in 2009 and another 2% (-5% inflation-adjusted) in 2010.
After a short-lived recovery in 2011, house prices fell again by 2.2% (-5.2% inflation-adjusted) in 2012.
House prices then recovered strongly in 2013, due to government´s launch of new property-related measures. Strong price rises continued from 2014 to 2018.
There are many restrictions on property ownership in Malta. Foreign nationals and EU citizens can usually only buy one property in Malta, and usually only for owner-occupancy, though they can buy more properties in ´specially designated areas´ such as Tigne Point, Portomaso, Cottoenra, Manoel Island, and Chambray.
Properties owned by foreigners can be rented out only if the property is valued over €233,000, has a swimming pool, and is registered with the Hotel and Catering Establishments Board. Foreign-owned properties can only be rented out for short-term lease agreements.
Rental yields seem to be rising in Malta - now around 4.4%
Rental yields in Malta are slightly higher this year than last.
Larger investment apartments in the favourite expatriate areas such as Sliema, St. Julians and Swieqi have average prices per square metre of around €3,200 to €3,500. In these areas, one can expect to earn an average rental return of around 4.4%.
Residential prices in Malta are now moving up again, according to the Central Bank of Malta.
Round trip transaction costs are rather high in Malta. See our Malta transaction costs analysis and our Malta transaction costs compared with other countries.
Taxes are moderate to high in Malta
Rental Income: Net rental income is generally taxed at progressive rates, up to 35%.
If the nonresident elected to be part of the Individual Investor Program, gross rental income will be taxed at a flat rate of 15%.
Capital Gains: There is no tax on capital gains. The Capital gains tax is a generally levied at a flat rate of 12% on the transfer value or the selling price of the property.
Inheritance: There are no inheritance taxes in Malta, but there is a transfer duty payable by the heir at 5% of the declared property value.
Residents: Resident citizens are taxed on their worldwide income at progressive rates. Resident foreigners are liable to tax only on their income sourced in Malta.
Buying costs are low to moderate in Malta
Roundtrip transaction costs ranges from 11.68% to 25.58% of property value. The buyer usually pays for the stamp duty (1% pre-paid stamp duty, and 4% remaining stamp duty). Seller paysreal estate agent commission at 1% to 5%, plus 18% VAT. The seller also pays 12% Capital Gains Tax.
Nonresidents can only sell their properties in Malta to Maltese citizens. They can only sell to other foreign nationals if they cannot find a buyer who is either a Maltese citizen or an EU citizen.
Law is pro-landlord in Malta, but courts are impossibly slow
Maltese rental market practice is pro-landlord.
Rents: Rents and rent increases can be freely negotiated, except for rental agreements entered before 1st June 1995.
Tenant Eviction: Maltese law operates extremely slowly. Hugh Peralta & Associates estimate that a contested eviction could take between 690 and 1,915 days, and the enforcement of a judgment to collect rent could take even longer.
Malta's 2018 growth exceeds projections; robust but slower growth in 2019The Maltese economy has continued its robust growth throughout 2018 and is still one of the fastest growing economies in the EU, with GDP expanding 6.6% in 2018, following the previous year's 6.7% y-o-y growth, based on the figures from Malta´s National Statistics Office (NSO). The "better than expected" economic performance of Malta, according to the European Commission’s Spring 2019 Economic Forecast, was attributed to the high private consumption growth that occurred in the second half of the year.
"Malta’s economic growth for 2018 exceeded expectations...GDP growth was higher than projected by the Ministry for Finance, the European Commission, the International Monetary Fund and various Credit Rating Agencies," said Finance Minister Edward Scicluna. In 2018, Malta (tied with Bulgaria) had the second highest budget surplus in EU at around 2% of GDP, only next to Luxembourg, marking Malta's third year of reported budget surplus, after 3.4% of GDP in 2017 and 0.9% of GDP in 2016. The government is aiming for a fiscal surplus of 1.3% of GDP in 2019.
In the last quarter of 2018, Malta's employment rate expanded to 72.3% from 70.5% in Q4 2017. Malta has one of the lowest unemployment rates in Europe, at less than half of the Euro Area's (EA19) average unemployment rate of 7.7%.
Annual inflation was at 1.7% in April 2019, an increase from 1.3% in March, and from 1.4% in the same month last year, according to the latest NSO figures.