Malta

Malta Residential Real Estate Market Analysis 2023

Lalaine C. Delmendo

Malta’s residential property market is now growing again, driven by strong demand, an improving residential construction sector, and a positive economic outlook.

During the year to Q3 2022, the nationwide property price index rose by 5.2% (1.8% inflation-adjusted), following year-on-year increases of both 1.7% in Q1 and Q2 2022, and 6.9% in Q4 2021, according to the Central Bank of Malta. On a quarterly basis, property prices increased 1.6% (unchanged when adjusted for inflation) in Q3 2022.

Malta’s house price annual change

Here are the changes in real estate prices by property type during the year to Q3 2022:

  • Apartment prices rose by 5.2% y-o-y, on average. When adjusted for inflation, prices were up by 1.8%.
  • Terraced house prices rose by 7.1% (3.6% inflation-adjusted).
  • Maisonette prices increased slightly by 0.9% y-o-y but actually fell by 2.3% when adjusted for inflation.
  • “Other houses”, consisting of townhouses, houses of character, and villas, experienced an average price fall of 3.5% (-6.6% inflation-adjusted).

Before the Covid-19 pandemic, property prices in Malta have been rising annually, registering a cumulative growth of 75% (62% inflation-adjusted) from 2012 to 2019.

ANNUAL HOUSE PRICE CHANGE (%)
Year Nominal Inflation-adjusted
2007 0.10 -2.87
2008 -4.36 -8.90
2009 -1.42 -0.98
2010 -1.98 -5.79
2011 6.14 4.60
2012 -2.21 -4.82
2013 6.41 5.34
2014 4.73 4.33
2015 10.03 8.67
2016 13.80 12.71
2017 8.82 7.39
2018 11.85 10.48
2019 3.04 1.24
2020 -2.40 -2.58
2021 6.94 4.73
Sources: Central Bank of Malta, Global Property Guide

Demand is still strong. During 2021, the number of property transactions in Malta surged by 30.1% y-o-y to 14,368 units, according to the National Statistics Office of Malta (NSO). Likewise, the total transaction value also increased 51.5% to €3.16 billion over the same period. Then in the first three quarters of 2022, both the number and value of transactions rose further by 0.4% and 2.6%, respectively.

Malta residential property prices

This can be partly attributed to the government´s temporary COVID-19 measures providing for a reduced tax and duty rate of 5% and 1.5%, respectively, on the first €400,000 (US$483,308) of property transferred inter vivos. These temporary measures came into force in June 2020 and has been extended several times from the end of July 2021 to September 2022.

Residential construction activity is also showing signs of improvement. In the first three quarters of 2022, the total number of approved new dwellings in Malta rose by 23.7% y-o-y to 7,459 units, after falling in the past two years due to pandemic-related restrictions.

Overall, the Maltese economy is healthy. During 2021, Malta’s economy grew strongly by 10.3%, offsetting the 8.3% contraction seen in 2020 due to the Covid-19 pandemic. The economic recovery continues this year, registering real annual GDP growth rates of 8.3% in Q1, 9.4% in Q2, and 5.2% in Q3, buoyed by strong domestic consumption and exports.

As a result, the European Commission expects the Maltese economy to grow by a robust 5.7% this year while the International Monetary Fund (IMF) released a more optimistic projection of a 6.2% growth.

Demand remains buoyant

The demand in the real estate market in Malta is back at its pre-pandemic levels, after experiencing a sharp slowdown in 2020 due to the negative impact of the COVID-19 pandemic.

During 2021, the number of property transactions in the country rose strongly by 30.1% y-o-y to 14,368 units, according to the National Statistics Office of Malta (NSO). Likewise, the total transaction value also increased 51.5% to €3.16 billion over the same period.

Demand remains buoyant this year, with both the number and value of transactions rising by 0.4% and 2.6%, respectively, in the first three quarters of 2022.

Malta residential property transactions

Despite this, there are wide regional variations. In Q3 2022, Il-Birgu, L-Isla, Bormla, and Il-Kalkara saw the biggest annual surge in the number of transactions, at 21.2%, followed by the regions:

  • Valletta, Floriana, Il-Marsa, Il-Ħamrun, Tal-Pietà, Santa Venera (15.1%);
  • L-Imdina, Ħad-Dingli, Ir-Rabat, L-Imtarfa, L-Imġarr (9.5%);
  • Il-Fgura, Raħal Ġdid, Santa Luċija, Ħal Tarxien (4.9%);
  • Birkirkara, Il-Gżira, L-Imsida, Ta´ Xbiex, San Ġwann (4.9%);
  • Għawdex (3.8%); and,
  • Pembroke, San Ġiljan, Tas-Sliema, Is-Swieqi, Ħal Għargħur (2.8%).

In contrast, residential property transactions are falling in other regions during Q3 2022:

  • Ħ´Attard, Ħal Balzan, L-Iklin, Ħal Lija (-32.2%);
  • Ħal Luqa, Il-Gudja, Ħal Għaxaq, Ħal Kirkop, L-Imqabba, Il-Qrendi, Ħal Safi, Iż-Żurrieq (-17.1%);
  • Ħal Qormi, Ħaż-Żebbuġ, Is-Siġġiewi (-7%);
  • Il-Mellieħa, San Pawl Il-Baħar (-5.6%);
  • Il-Mosta, In-Naxxar (-5.4%); and,
  • Ħaż-Żabbar, Ix-Xgħajra, Iż-Żejtun, Birżebbuġa, Marsaskala, Marsaxlokk (-1%).

Buying property in Malta has several restrictions

Unfortunately, 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 on short-term leases.

Thus, buying several properties in Malta for rental income can be complicated, but for buying a summer house abroad, the restrictions are not too severe.

Becoming a resident in Malta: Residency by Investment

The government of Malta has developed a new program for non-EU citizens that would like to reside there. The new Maltese Exceptional Investor Naturalization (MEIN) program replaced the old Malta Individual Investment Programme (MIIP) in November 2020, with salient differences being:

  • Contribution: €600,000 for the standard residency route (36 months) and €750,000 for the expedited route (12 months), instead of €650,000.

For dependents, the required contribution under the new policy is €50,000.

  • Donation: the compulsory donation to an NGO is raised to €10,000 from €5,000 previously.
  • Residential property: the threshold for purchasing a property is raised to €700,000, from €350,000. But the threshold for rental property remains unchanged at an annual rent of €16,000. The property needs to be held for 5 years from the issuance of the certificate of citizenship.
  • Government bonds: the requirement to invest in government bonds is removed.
  • Due diligence fees: for main applicants, due diligence fees increased to €15,000 from €7,500; for dependents, they also increased to €10,000 from €3,000-€5,000.
  • Maximum age threshold: the maximum age threshold for dependents is raised to 29 from 27. Also, dependents who meet the legal definition of ‘disability’ can form part of a parent’s application, regardless of age.
  • Application for residence: all adult dependents are required to apply for residence, not just the main applicant. The non-refundable pre-payment increases to €10,000, from €5,000 previously. There is also a €5,000 fee for the main applicant.

Under the MEIN, the number of citizenship certificates issued to principal applicants (i.e., excluding dependents) is capped at 400 every year, and 1,500 for the duration of the policy.

Residential construction activity improving

In the first three quarters of 2022, the total number of approved new dwellings in Malta rose by 23.7% y-o-y to 7,459 units, according to the National Statistics Office of Malta (NSO), after falling in the past two years due to pandemic-related restrictions.

Malta development permits

By property type:

  • Apartment permits, which accounted for 71% of the total dwelling permits approved, increased 22.8% y-o-y to 5,299 units in Q1-Q3 2022.
  • Maisonette permits rose by 19.5% y-o-y to 698 units.
  • Penthouses permits rose by a huge 38.3% y-o-y to 1,152 units.
  • Terraced house permits were up 13.6% y-o-y to 243 units.
  • For other types of houses, permits fell by 18.3% y-o-y to just 67 units.

By district:

  • In the Northern district, new dwelling permits approved rose by 20.3% y-o-y to 1,299 units in the first three quarters of 2022.
  • In Northern Harbour, permits increased 31% y-o-y to 1,988 units.
  • In the South Eastern region, permits increased by 13.1% y-o-y to 958 units.
  • In the Southern Harbour, dwelling permits approved fell by 5.8% y-o-y to 875 units.
  • In the Western part, permits were up strongly by 47.1% y-o-y to 856 units.
  • In Gozo and Comino, permits rose by 38.2% y-o-y to 1,483 units.

Malta dwelling permits annual change

Mortgage interest rates remain more or less steady

Mortgage interest rates in Malta remain low, despite the ECB repo rate’s recent rate hikes to counter inflationary pressures. In September 2022, the average interest rate on outstanding housing loans was 2.76%, slightly down from 2.83% in the previous year and 3.02% two years ago, according to the European Central Bank (ECB).

Malta mortgage interest rates graph

By maturity:

  • Up to 1 year: 7.34% in September 2022, up from 7.2% a year ago and 7.07% two years earlier
  • Over 1 and up to 5 years: 4.25%, up slightly from 4.13% in September 2021 and 3.97% in September 2020
  • Over 5 years: 2.74%, down from 2.82% a year earlier and 3% two years ago

Housing loan interest rates in Malta have followed the ECB repo rate movements in the past. Housing loan rates fell sharply from late 2008, following ECB rate cuts. When the ECB cut its base rate to 0% in March 2016, where it remained there until the first half of 2022, housing loan rates in Malta also stabilized at around 3%.

The mortgage market continues to grow

Malta’s mortgage market grew strongly to more than 44% of GDP in the past two years, up from less than 40% of GDP in 2019 and 29.5% of GDP in 2005, thanks to low and stable interest rates.

In October 2022, total housing loans outstanding rose strongly by 10.3% y-o-y to €7.04 billion (US$7.42 billion).

Malta housing loans

Housing loans grew by an average of 8.1% annually from 2010 to 2020, a slowdown from annual average growth of almost 13% in 2006-2009. In 2021, housing loan growth accelerated again to nearly 11%.

The median loan-to-value ratio is now 80%, according to EMF’s Hypostat 2021 report.

Malta’s mortgage market is dominated by Bank of Valletta plc and HSBC Bank Malta plc, which account for almost 72% of the domestic retail market.

Rental yields are rising

Rental yields seem to be rising in Malta, now at around 4.4%, according to a Global Property Guide research conducted in November 2022.

The highest-yielding areas for apartments are Valletta, St Julian’s, and Qawra, with gross rental yields ranging from 4% to 7.8%.

Despite this, round-trip transaction costs are rather high in Malta.

Free market rents are back at pre-pandemic levels, and tourist arrivals increasing again

The residential rental market continued to recover from the trough reached in Q4 2020 during the onset of the Covid-19 pandemic, with advertised residential rents rising from 12.7% to 14.7% during 2021, according to the Central Bank of Malta’s Quarterly Review Q4 2022. Then in the third quarter of 2022, advertised rents already reached the pre-pandemic levels, buoyed by the return of tourists and foreign expat workers.

Malta’s rental market has a peculiar composition – only 10% of rental properties are rented at market prices, the rest being in the subsidized sector.

Most Maltese opt to own property rather than rent, with owner-occupancy rates currently at about 80%, up from 68% in 1995, according to the European Mortgage Federation’s Hypostat 2021 report.

Malta tourist arrivals

Before the pandemic, rents had been rising strongly in Malta, thanks to the increasing number of foreign workers, who mostly live in rented accommodation. Tourism, which increased by 10% annually from 2013 to 2019, and the introduction of the MIIP in 2013, increased rental demand further. However, in 2020, tourist arrivals plummeted by 76.1% to just 658,600 people, according to the Central Bank of Malta. With a lack of demand, rental rates dropped by double-digit figures.

With the easing of pandemic-related restrictions, the tourism sector started to show improvements last year, with the total number of tourist arrivals rising by 47% y-o-y to 968,100 people. Yet it remains far below the 2.75 million tourists who visited Malta in 2019.

In the first three quarters of 2022, tourist arrivals reached 1.72 million, almost tripling the 586,200 visitors recorded in the same period last year.

UK nationals accounted for 18.9% of total tourist arrivals in Malta in the first three quarters of 2022, followed by Italy (17.6%), France (11.8%), and Germany (7.3%). Non-EU citizens represented almost 30% of total arrivals.

Vacancy rate remains high

Paradoxically, over the past decade Malta’s residential vacancy rate has remained high, despite continuously rising house prices. The vacancy rate now stands at 18% of total dwelling stock - one of the highest in the European Union. Many say this is due to Malta’s rent control system. To protect tenants, private rental market rents are frozen and landlords are prohibited from evicting tenants unless a suitable alternative accommodation is offered. To increase the rent the landlord needs the approval of the Rent Regulation Board, which is hardly ever granted.

To address the issue, the Rent Reform Law came into force on January 1, 2010. The new law established an annual minimum rent and was intended to gradually stop the inheritance of rented properties so that they revert to their owners.

Moreover, to address another source of vacant properties, the government recently 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 the sale 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%.

Yet according to others, vacant properties don’t pose a serious problem. This is the view of 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 Housing Authority introduced the Skema Nikru Biex Nassistu program, 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 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 payments, with a 2% increase annually.

Malta’s economy continues to grow, with inflation surging

During 2021, Malta’s economy grew strongly by 10.3%, offsetting the 8.3% contraction seen in 2020 due to the Covid-19 pandemic. The economic recovery continues this year, registering real annual GDP growth rates of 8.3% in Q1, 9.4% in Q2, and 5.2% in Q3, buoyed by strong domestic consumption and exports.

As a result, the European Commission expects the Maltese economy to grow by a robust 5.7% this year while the International Monetary Fund (IMF) released recently a more optimistic projection of a 6.2% growth.

“So far, economic growth in Malta has only been affected by Russia’s invasion of Ukraine to a limited extent, given its low direct exposure to trade with these two countries,” said the European Commission. “On the back of a strong economic performance in the first half of 2022, real GDP growth this year is expected to reach 5.7%, driven by robust domestic demand and a strong positive contribution from net exports.”

Before the pandemic, the economy had been growing strongly, with an annual average growth of 6.2% from 2012 to 2019, according to the IMF.

The budget deficit is expected to fall to about 5.6% of GDP this year, from 8% of GDP in 2021 and 9.5% of GDP in 2020, according to the central bank projections.

Despite this, Malta’s debt is still projected to grow to 58.1% of GDP this year, from 57% in 2021, 53.4% in 2020, and just 40.7% in 2019.

The labor market remains fundamentally strong. Unemployment stood at 2.9% in Q2 2022, down from 3.4% a year ago and one of the lowest in the EU, according to the Central Bank of Malta.

Malta gdp inflation

The total number of unemployed dropped to 8,400 people in Q2 2022, down from 9,400 a year earlier.

In October 2022, annual inflation increased to a record high of 7.4%, sharply up from just 1.4% in the same period last year, buoyed by a surge in commodity prices, housing and transportation costs, according to the NSO.

Inflation averaged 1.1% in 2013-21, a decline from an annual average of 2.9% in 2008-12.

SOURCES:

Malta - More data and information