The current market housing price in Malta and Gozo is considered to be “just sustainable” and will remain so as long as disposable income and prices are stable or grow equally, according to a study published by Grant Thorton and Dhalia on Malta’s property.
Since the housing prices are considered to be barely sustainable, the high selling prices for housing units that prevailed throughout 2013 and 2022 have given rise to concerns about housing affordability.
The report noted that in 2021, the median 2-young adults household could just afford a 115 square metre apartment. This is based on estimates of the borrowing capacity of two individuals that take on a loan for 35 years at the prevailing average interest rate on home loans.
A similar calculation for a one-adult household shows that the maximum affordable house price falls significantly short of prevailing market prices. Since first-time buyers constitute an important source of housing demand, these considerations are important in forming expectations about future developments in the Maltese housing market, the report said.
Financial services firm Grant Thornton Malta and real estate agency Dhalia joined forces to present an insightful study on the Maltese property market, which for the first time presents a factual and in-depth understanding of this major economical pillar.
The findings of the study were presented during an event on Tuesday organised at Magazino Hall in Valletta, which saw the participation of stakeholders in the property and construction industries and local authorities.
The study presented information on a number of topics, including housing supply and demand, the housing market outlook for 2022 – 2024, housing price sustainability, and gross rental yields.
Consultant Daniel Gravino presented the findings of the study, starting with the Selling House Price Index.
Gravino explained that that the Selling House Price Index measures the rate of change in the selling price of housing units in Malta over time..
Housing prices doubled in 2022 when compared to what they were in 2013
The findings show that between the first half of 2013 (2013H1) and the first half of 2022 (2022H1) house prices increased by 100%. This means that, on average, a property that sold for €100,000 in 2013H1 would have been selling at €200,000 in 2022H1. This represents a significant increase in house prices that coincided with fast economic growth and a strong influx of foreign workers, the report said.
Gravino noted that this, however, was not a period of even growth. The Selling House Price Index increased by around 20% between 2013H and 2016H1, and by around 50% between 2016H1 and 2019H1. Following this period, house price growth slowed down considerably.
The largest house prices increases occurred between 2016 and 2019.
Gravino further explained that in the second half of 2019, the annual growth in the Selling Price Index turned marginally negative and grew slowly in 2020H1.
In part, these developments were the result of the uncertainty caused by the political turmoil in the latter months of 2019 and the introduction of a series of restrictive measures in March and April of 2020 in relation to developments resulting from the COVID-19 pandemic, Gravino said.
The report highlighted that a similar trend is observed in the number of final deeds of sale reported by the National Statistics Office (NSO), as these dropped by 21% in 2020 when compared to 2019; mainly reflecting developments that occurred throughout the first half of that year.
In the following periods, activity in the housing market picked up again as many property seekers sought to benefit from stamp duty exemptions that the government introduced as part of its Covid-19 economic recovery plan.
A survey carried out among 268 respondents in June 2020 shows that these measures would likely incentivise as many as 57% of property seekers to either ‘buy sooner’ or ‘buy more expensive’ than they originally intended, or both, the report said.
In line with these expectations, NSO reports that 3,978 promise of sale (POS) agreements were signed in the first quarter of 2021 alone. Activity picked up to such an extent that the volume of POS agreements in the first quarter of 2021 exceeded pre-pandemic levels.
The study found, however, that in 2022H1, growth in the Selling House Price Index was marginal, in part reflecting a decline of around 33% in the number of POS agreements when the first quarter of 2022 is compared to the same period in the previous year.
Meanwhile, Gravino also spoke about the findings of study related to the Rental House Price Index.
He said that the Rental Price Index increased significantly, because a housing unit that rented for €500 per month in 2013H1 would have been renting for €710 per month in 20221H1.
According to the report, the Rental Price Index increased by 42% over the nine-year period to 2022H1.
It was also highlighted that when the number of foreign nationals residing in Malta started to grow at a very fast pace – from 2016 onwards – rent, instead of ownership, became an increasingly popular choice.
In part, this tendency to rent rather than buy is likely the result of economic immigrants thinking of Malta as a temporary place of residence.
Following a sustained period of growth in rental prices, came a steep fall.
In 2020H1, listed rental prices were around 10% lower than the prices charged during the comparable period in the previous year. By 2020H2, the Rental Price Index had declined by as much as 16% over the same period in the previous year, the report said.
“The key insight of this is that the lower rental rates and relatively stable house prices suggest that property investors believe the dip in rental prices to be temporary. Therefore, one ought to expect further downward pressure on prices,” Gravino said.
Speaking about Housing Supply, it was noted that Permits for new housing units increased substantially since 2016, amounting to 20k in 2018 and 2019 alone. These add to the housing stock with a time lag of 1-3 years after the issuance of the permit.
In contrast to previous years, in 2020 and 2021, additional housing supply outstripped additional demand, thereby putting downward pressure on prices.
However, the situation is complicated by international developments that have impacted the global economy. In particular, the cost of raw materials used in construction has soared. Conservative estimates indicate an increase of circa 20% over a very short period of time that will push house prices upwards. A eurozone interest rate rise in response to high rates of inflation may put additional downward pressure on house prices as it translates into higher borrowing rates for both first time buyers and investors. The future for the housing market is challenging, the report said.
Speaking about Gross Rental Yields, Gravino noted that grow rental yield for the average housing unit from 5.3% in 2019 to 4.6% in 2021. Depending on the locality, it varies between 3.9% and 5.6%.
Meanwhile, when looking at the increase in selling and rental prices, the document states that what may seem as a moderate increase in property prices at face value is actually a substantial increase in the price per square metre of floor area.
Another distinguishing factor calculated between the two indices is advertised price point and the actual selling price. The publication concerns itself with the actual transacted price and this affects the outcome of the Maltese housing market study.
Prior to the presentation of the study, Grant Thornton Partner and Head of Advisory George Vella, followed by Dhalia Chairman Chris Grech opened the event in the presence of Economy Minister Silvio Schembri and Planning Minister Stefan Zrinzo Azzopardi.
The two industry veterans discussed what prompted both organisations to work on this ambitious and first-of-its-kind study of the property market in Malta and Gozo.
The report combines different factors pertaining to house prices collated by Dhalia’s network of agents. This information was then categorised and analysed by Grant Thornton’s data analysts with the result presenting a faithful picture of the property market, which not only takes into consideration the location of a property but also its specific features. Such methodology allowed measuring the rate of change in the selling and rental prices of housing units in the country over time.
“This report seeks to understand the key determining factors of the property market. Without a thorough understanding of the behaviour and impact of these factors, it is highly difficult for anyone to form any meaningful insights and opinions about this extremely important industry,” Vella said.
Dhalia Chairman Chris Grech, who was speaking on behalf of Dhalia CEO Alan Grima, said that the data being layed out today is the foundation of the sector as there are many other aspects to consider. However, this report will add context and insight on the selling and renting of property in Malta and Gozo.
He noted that Malta’s faces a bigger challenge that it needs to address because over the years development was not organised in a rural and urban system, but rather Malta has mixed use in closed areas.
Data of this sort is expected to be presented every six months, possibly exploring other aspects as well.