Surging property prices in Malta
April 19, 2016
Maltese property prices rose 10.03% (8.53% inflation-adjusted) during the year to Q4 2015, according the Central Bank of Malta (CBM). During the latest quarter, property prices increased by 5.92% (8.86% inflation-adjusted) in Q4 2015.
The price hikes were felt across all property types:
- Apartments saw a 7.32% nominal price increase over the year to Q4 2015, or 5.85% when adjusted for inflation.
- Terrace houses had the highest price increase of 17.86% during the year to Q4 2015 (16.25% inflation-adjusted).
- Maisonettes also posted a double digit price rises of around 15.21% y-o-y in Q4 2015 (13.63% inflation-adjusted).
- "Other houses", consisting of townhouses, houses of character and villas, increased by 7.96% y-o-y in Q4 2015 (6.49% inflation-adjusted).
The central bank attributed the upward price trend partly to the government measures aiming to support property demand. This includes the Individual Investor Programme, introduced in the government’s November 2013 budget, which targets high net worth individuals.
Also, the stamp duty exemption for first-time buyers on the first €150,000 of a new property’s value has been extended again till December 31, 2016. The scheme saves first-time buyers up to €5,000 (US$ 5,606), and also applies to promise of sales signed from July 1, 2015. Buyers who have paid after July 1, 2015 (when the scheme was originally supposed to end) are still entitled to a full stamp duty refund.
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). Over the same period:
- 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)
However, property prices started to fall in 2008 due to the global financial meltdown. 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 recovered, rising strongly in 2013, due to government's launch of new property-related measures. Strong price hikes continued in 2014, although the increases slowed at the end of the that year.
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.
The housing boom
Malta’s housing boom was brief but sweet, lasting from 2002 to 2005. It 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.
A supporting factor was the Investment Registration Scheme, a tax amnesty for Maltese residents with overseas assets, effective from 2001 to 2005. This allowed income on previously hidden overseas assets to become legal, with no questions asked, if they were declared and brought back to Malta. Many residents took advantage of the scheme, often using their repatriated assets to buy property in Malta. Lastly, property development was encouraged by the abolition of building height requirements in some areas by the Malta Environment Planning Authority (MEPA).
The house price rises continued at a gentle pace from 2005 to 2007. Then like other European countries, the global recession hit Malta in 2009. Malta is dependent on foreign trade and tourism, and Malta’s economy experienced a 2.13% contraction in 2009.
Low lending rates, more housing loans
Housing lending rates have hovered near 3% since December 2008. In January 2016 the lending rate on new mortgages was 2.82%, down from 2.93% the previous January. Before Malta joined the Euro in January 2008, Malta's mortgage borrowing rates had ranged from 4% to 5% and above.
Residential mortgage debt has consequently grown to 45.4% of GDP in 2014, from 21.5% of GDP in 2003, according to the European Mortgage Federation (EMF). Outstanding loans for house purchases were up by 8.41% y-o-y to January 2016, to €3.91 billion (US$ 4.42 billion).
Low rental yields
Rental yields in Malta are quite low. Apartments have gross rental yields ranging from 3.26% to 4.44%, according to Global Property Guide research of March 2014.
Larger apartments (250 sq. m. apartments), which are on average priced at around €2,937 per sq. m., have lower yields. Smaller apartments (75 sq. m. and 120 sq. m. apartments) are cheaper - especially 120 sq. m. apartments - at around €2,000 to €2,600 per sq. m., and have higher yields.
Most Maltese opt to own property rather than rent. Malta’s owner occupancy rate was around 80.3% in 2013, up from 68% in 1995, according to the EMF.
Of Malta's 152,770 primary dwelling units in 2013, 23.55% were rented, down from 28.3% 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.
New dwelling permits are rising, vacancy rates are falling
Development permits for new dwelling units rose by 34.4% in 2015 to 3,947, still below 2007's peak of 11,343. Confidence among construction firms slightly decreased during the year, the index declining to 16 in September 2015 from 22 in June 2015, but is still far above the indicator's long-term average of -26.
The rise in dwelling permits was seen across all dwelling types. In 2015, terraced houses had the highest permit increase, with permissions rising 67.7% y-o-y to 342 units. Apartment permits, which account for more than three-fourths of the total permits issued, rose by 35.9% to 3,019 units. Maisonettes rose by 13.8% to 471 units, while 'other property types' were up by 17.4% to 115 units, according to the Malta Environment and Planning Authority (MEPA).
House price declines during the recession were moderate, not catastrophic, peaking at 9.85% over the year to Q1 2009. They were partly caused by overbuilding. The government had devised a program in the 1980s to give middle class working Maltese access to loans to purchase homes, to reduce the need for social housing. This subsidized financing encouraged construction.
As of 2013, the residential vacancy rate was 18.4% of the total dwelling stock (41,282 units). Around 13.3% of all dwellings were considered secondary homes, according to the European Mortgage Federation’s (EMF) Hypostat 2014 report.
This was much lower than the alarming peak in 2005, when 27.6% of all dwellings were vacant (53,136 units) with 22.4% permanently vacant. Only 5.2% of all dwellings were then classified as second homes. The vacant dwellings total had risen 89% between 1995 and 2005.
The significant number of vacant properties in Malta is partly attributed to litigation between heirs. In an attempt to address this issue, the government's 2016 budget reduced the period after which an inherited property in dispute is allowed to be sold from 10 years to 3 years, provided that most (but not all) heirs agree on its selling price
To further encourage the use of vacant properties, the government is cutting stamp duty on transfers of properties within an urban conservation area from 5% to 2.5%, for contracts dated between January 1 and December 31, 2016. Also, transfers of restored properties within an urban conservation area will now have a lower final withholding tax, reduced from 8% to 5%.
Slower growth expected in 2016, yet still among the better performing eurozone economies
In 2015, Malta had the second highest economic growth in the Eurozone, according to February's European Union (EU) Winter Economic Forecast (WEF), with 4.9% GDP growth in 2015, surpassing an earlier EU forecast of 3.3%. GDP in Q3 2015 rose by 5.4% y-o-y, following growth rates of 5.8% and 5.2% in Q2 and Q1, respectively.
Malta's rapid expansion in 2015 followed 3.5% growth in 2014. The Maltese economy had expanded by 3.2% annually from 2005 to 2008, and contracting by 2.5% in 2009 due to the global crisis, the economy bounced back strongly with real GDP growth rate of 3.5% in 2010, 2.1% in 2011, 2.5% in 2012, and 2.4% in 2013.
In 2016, the EU expects Malta's economy to expand by 3.9%, the third highest in the EU, after Ireland and Romania.
Malta's fiscal deficit was only 1.6% of GDP in 2015, down from 2.1% in 2014, and 2.6% in 2013. The deficit is expected to drop further to 1.1% of GDP in 2016.
Among the EU countries, Malta had the third lowest unemployment rate in January 2016 at around 5.1%, next only to the Czech Republic and Germany, and half Euro Area's (EA19) average unemployment rate of 10.3%.
Inflation rose to 1% in February 2016, up from 0.8% in January 2016, and an improvement on 0.6% inflation the same month last year. The recent inflation was the EU's second highest rate (tied with Austria), next only to Belgium with 1.1% inflation, according to Eurostat.