Robust house price hikes continue in Malta

Maria de Guzman | July 07, 2019

House prices in Malta are still rising, with a sharp increase of 10.83% (9.51% inflation-adjusted) during the year to Q1 2019, according to the Central Bank of Malta (CBM). Property prices rose by 4.72% (6.56% inflation-adjusted) during the latest quarter.

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.

Malta overview annual house price change graph

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.

Low mortgage rates in Malta boost housing loans

Mortgage loan rates have hovered near 3% since December 2008. In March 2019, the average lending rate on new mortgages was 2.55%, a slight decline from 2.76% in the same period last year.

Malta mortgage interest rates graph

In February 2019, Malta´s outstanding loans for house purchases increased by 9.49% y-o-y to €5.03 billion (US$ 5.66 billion).

Moderate rental yields

Rental yields in Malta are moderate, at around 4.4% for apartments in favourite expatriate areas such as Sliema, St. Julian´s, and Swieqi, based on Global Property Guide research iof April 2018.

Apartment prices in these popular expat spots average from around €3,200 to €3,500 per sq. m.

Most Maltese opt to own property rather than rent, with owner-occupancy rates of 81.4% in 2016, up from 68% in 1995, according to the EMF. Around 71.18% of the total rental housing stock is private sector, 26.24% government-owned or council housing, and 2.58% belongs to the Maltese church.

Rents rose sharply from 2012 to 2015, according to Malta´s National Statistics Office (NSO). The average rent for a single-bedroom apartment shot up by 38% from €437 (US$ 467.20) in 2012, to €605 (US$ 646.81) in 2015. Rents for two bedroom flats rose by 29% to €796 (US$ 851) during this period, and for three-bedroom flats by 23% to €1,023 (US$ 1,093.69).

These rent hikes are attributed to the increasing number of foreign workers, who mostly live in rented accommodation. The increase is due to rising tourism, more expat workers, and the introduction of the Individual Investor Programme (IIP) in 2017.

Rising rents are putting pressure on low-income families. According to Charles Miceli of Alleanza kontra l-Faqar (Alliance against Poverty), more than 3,000 people are waiting for social housing units, renting in the private sector until these social housing units become available.

A new set of measures was introduced by the government in this year´s budget, which aims to aid renters. One is the scrapping of the means test when calculating rent subsidies.  Under the new benefit system, the maximum amount of annual subsidies has been increased:

  • A single person can avail a max housing benefit of €3,600, up from €1,600.
  • Couples with no children receive a maximum of €3,600, up from €1,900.
  • Couples with a child have a max benefit of €4,800, up from €2,800.
  • Couples with two or more children can avail a maximum subsidy of €5,000, up from €3,000.

New dwelling permits reached a record high in 2018

In 2018, the number of approved development permits for new dwelling units surged by 31.2% y-o-y to 12,885 units, beating the previous record of 11,343 units in 2011. Terraced houses had the highest permit increase in 2018, with permissions rising by 43% to 396 units. Apartment permits, which account for more than 80% of the total permits issued, rose by 31.7% to 11,211 units. Maisonettes also increased by 26.9% to 1,166 units, however, ´other property types´ fell by 0.9% to 112 units, according to the Malta Environment and Planning Authority (MEPA).

As of 2013, the residential vacancy rate was 18.4% of the total dwelling stock (41,282 units), with 13.3% of all dwellings second homes, according to the European Mortgage Federation´s (EMF) Hypostat 2014 report - much lower than the alarming peak in 2005, when 27.6% of all dwellings were vacant (53,136 units).

Malta development permits

The significant number of vacant properties is partly due to litigation between heirs. In an attempt to address this issue, the government´s 2016 budget reduced from 10 years to 3 years the period after which an inherited property in dispute can be sold, provided that most (but not all) heirs agree on its selling price.

To further encourage the use of vacant properties, the government reduced the stamp duty on transfers of properties within an urban conservation area from 5% to 2.5% in 2016. Also, transfers of restored properties within an urban conservation area will now have a lower final withholding tax, reduced from 8% to 5%. In 2017, the government also lowered the stamp duty on properties acquired in Gozo from 5% to 2%.

Vacant properties don´t pose a serious problem, says Malta Developers´ Association president Sandro Chetcuti. "Just drop this about vacant properties," said Chetcuti."There is no problem with this. There are around 55,000 properties and more than half of these are second homes or summer residences while half of the remainder are either dilapidated or being fought over by heirs. The rest are on the market but they are simply overpriced and cannot sell."

In 2018, the Skema Nikru Biex Nassistu program was introduced, encouraging private owners of one, two, or three bedroomed properties at least 30 years old which have been vacant for a year or more to enter into a lease agreement with the Housing Authority for ten years.

The vacant property owner will receive a maximum grant of €25,000 to refurbish the property. The Housing Authority will then rent the property from the owner in a fully finished state, with the rental based on a set of criteria. During the 10 year period, the owner will receive constant rental payment, with a 2% increase annually.

Malta´s 2018 growth exceeds projections; robust but slower growth in 2019

The 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 gdp inflation

"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.

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