Housing: Making hay while young couples flounder

Last Updated on Thursday, 19 January, 2023 at 12:53 pm by The Malta Business Weekly

Stephen Calleja

A study carried out by reputable organisations last year established that the price of property had doubled in the last decade.

For every €100,000 spent on property in 2013, buyers in 2022 have to pay €200,000. In that timeframe, wages have increased, but not by the same proportion.

It may, or may not be, a coincidence that this increase in property prices started when the Labour Party was elected to government.

The policy adopted by the Labour government – that of encouraging foreigners to settle in Malta – meant that there was a demand for accommodation, and this inevitably pushed up the prices.

 “Make hay while the sun shines,” was what the then Malta Developers Association president Sandro Chetcuti had said soon afterwards.

His advice was followed to the letter, as the upward trend in the price of property gathered momentum.

It has now become increasingly difficult for many people who want to buy their own property or move house, for different reasons, to find the home they require within the price range they can afford.

In the meantime, old houses continue to be pulled down to make way for apartments; existing blocks of flats are going higher by at least two storeys and open areas are being converted into even more buildings.

The concrete jungle is getting bigger, wider and higher.

Report

The study that was published last year by Grant Thornton and Dhalia showed that the selling price index moved up by around 20% between 2013 and 2016, further increasing by 50% between 2016 and 2019.

There was a short negative trend in the second half of 2019 but prices started going up again as from 2020. This was the time when the country was going through political turmoil – the events leading to the resignation of Prime Minister Joseph Muscat – and the beginning of the Covid-19 pandemic.

There was a similar trend with regard to the rental market. According to the same study, a housing unit that rented for €500 per month in 2013 was going for over €700 per month in 2022. The Rental Price Index shot up by 42% over the nine-year period in question.

This was largely due to an increase in demand as many foreigners started to settle in Malta from 2016 onwards. But this inevitably also meant an increase for Maltese citizens – couples, families and singles. The rental prices dropped with the Covid-19 pandemic, as many foreigners left the island. Now they’re coming back.

The explosion in property prices – both for purchase and for rent – did not match the increases in salaries. The annual basic salary has increased marginally in the same period, certainly not by the same percentage as the rise in the property prices. With an increase in the cost of other commodities and necessary items, it has become increasingly more difficult for the average person/couple/family to make ends meet and, therefore, less likely to be in a position to purchase property – especially for people who do not already own one.

First-time buyers

Today, young people are leaving their parents’ homes much later in life than what used to happen in the past.

Half a century ago, couples used to wed in their late teens or early 20s, but little by little the age when young people leave their parental home – either to get married or to live on their own – increased first to the mid-20s, and later to the late 20s, and many times even beyond that.

There are various reasons for this, but one of the most common motives is that it has become increasingly harder for youngsters to buy their own home, for financial reasons.

Unless the parents, or some other Good Samaritan, are able to help them out, most of them cannot afford to buy their own home, even if, in the case of couples, both partners have a job.

The banks offer loans, but there is a capping according to the wages of the person/s buying the property and this limit is many times too low for the purchase to be made. Couples are discouraged because the amount of money they are offered as a maximum by the bank is often not enough to buy the type of property they require – and we’re not talking about palaces and mansions. The way things are happening in Malta, most young couples cannot afford the simplest of dwellings.

One must also remember that the purchasers have to fork out a percentage of the total price they have to pay and sometimes they do not even manage that. (Side note: maybe they are spending too much on holidays abroad and partying without considering the future; so they are making it difficult for themselves when it comes to accumulating the money they require to make that down payment. But that’s a story for another time).

It is even more difficult for single people who want to leave the parental home. Since only one wage is calculated, the maximum a bank is ready to issue is even lower than that which is offered to couples with two wages. It’s hard to find a property being sold at €100,000-€120,000, which is what is offered by banks to single people with an average wage.

Government pledge

In its electoral programme, the Labour Party pledged to assist first-time buyers in their endeavour – perhaps the word “ordeal” is a much better way to describe what these youngsters are going through – to purchase their home. This pledge was implemented in the budget for 2023.

The PL government is handing out €1,000 per year, up to 10 years, to first-time buyers, irrespective of their income. No means testing will take place and every first-time buyer will be eligible on condition that a bank loan is taken.

When he launched the idea, Prime Minister Robert Abela had said that this is an equivalent of a month’s loan for 10 years.

But such an announcement immediately pushed up the prices of property in Malta, long before the pledge was implemented.

This pledge was made in February 2022, and was to be applied retroactively to the previous month. But, since the pledge was made, the price of property has gone up by more than €10,000 (in a few months, not 10 years) and the assistance that the government is giving will serve for little, if anything at all.

Before the election, when asked about this, Abela had said that Labour’s pledge would not have affected the property market and lead to an increase in prices. Experts in the property market had thought otherwise.

With the benefit of hindsight, we know that the experts were right and Abela and the PL were wrong. That €10,000 assistance – remember, spread over 10 years – has served to increase the price of any property by … much more than the €10,000 the government is giving.

Young couples will be getting €10,000 in 10 years, but the cost of the property they are buying has risen by much more than that.

- Advertisement -