Research conducted by economists at the Central Bank of Malta shows that growth in rental rates was slower in 2019 than in the previous year, although it remained elevated from a historical perspective. In 2020, slower growth in rental rates was amplified by the effects of COVID-19, which led to an 11% drop during the second quarter.
COVID-19 also led the annual growth of rental rates to turn negative during the first quarter of 2020, where advertised rental rates were between 3% and 3.5% lower than they had been during the corresponding quarter of 2019. A more pronounced drop in rental rates was observed in the second quarter of 2020, with rental rates decreasing by 11%. This period started to reflect more fully the impact of containment measures worldwide, including Malta, to address the spread of the COVID-19 virus, with the drop in rates driven by a combination of reduced demand for and increased supply of rental units on the market.
The Bank’s annual Research Bulletin includes a detailed article explaining the development of a quality-adjusted residential real estate rent index, as well as an article concerning the linkages between house prices, inflows of foreign workers and domestic consumption. It also includes a comparison of the results of Malta’s Household Finance and Consumption Survey with those of Euro Area Member States and other participating EU countries, and an extension of one of the macroeconometric models used by the Bank, known as STREAM.
The Bank’s innovative approach to analysing the residential real estate rental market rests on the use of ‘Big Data’ from publicly available sources so as to get a better understanding of the evolution of private-sector rents after taking into account quality adjustments. The database now comprises 21,883 listings of advertised rental rates, and takes into account details concerning the type of property, location, size and other attributes that may have an impact on rental rates.
“Until the last quarter of 2018, the database consisted of solely two housing types – apartments and maisonettes – along with information about the locality in which the property is located and the number of bedrooms.
“As part of a continuous effort to enrich this database, starting in the first quarter of 2019, this information was supplemented by the collection of data about penthouses, additional localities that were previously not incorporated and other observable property characteristics.
“In particular, we started to collect information on attributes such as the availability of a garage, garden or pool facilities and instances where a property is advertised as being on or close to a seafront or enjoying some view,” the authors of the article explained.
This approach can be used both for estimation of over/under-valuation of rental rates and to construct the growth rates of quality-adjusted private sector rental rates over time.
DID YOU KNOW?
- Relative to apartments, penthouses generally attract a premium of between 23% and 27%.
- Most of the properties advertised for rent are two-bedroom (40%) and three-bedroom (46%) properties. Around 12% of listings have only one bedroom, while a very limited number of properties (just under 2%) come with four or more bedrooms.
- Rental rates for two- and three-bedroom units stand at around 35% and 65% higher than the benchmark one-bedroom unit.
- The number of properties advertised as having a garage, garden or pool amounted to 3%, 1%, and 2%, respectively.
- A property close to a seafront commands a 15% premium, while the availability of a garage carries a premium of 13%.
The full Research Bulletin is available via the Publications tab on the Bank’s website. It can also be downloaded from here.
Highlights of the other articles:
In 2016, the median Maltese household held more real and financial assets and more total liabilities than households in most Euro Area and other EU countries, although there were relatively fewer indebted households than in most other countries participating in the survey. These were some of the findings from the third wave of the Household Finance and Consumption Survey (HFCS), co-ordinated by the ECB, for Malta, which were compared with those for members of the Eurosystem and other participants from the remaining EU Member States.
Another article proposes an extension to STREAM, the Bank’s main macroeconometric model, by using sectoral information from input-output tables. This extension is a valuable addition to the Bank’s econometric toolkit since it is able to address a range of policy-oriented questions.
The fourth article analyses the relationship between house prices, foreign workers, and domestic consumption through two distinct sources of housing market disturbances: domestic and foreign demand shocks. The former captures factors that affect the demand for housing by permanent residents, such as the desire for homeownership, government housing market initiatives, and socio-economic changes, such as separations and divorces. On the other hand, a foreign housing demand shock is the authors’ innovative contribution to capture the effect of demand for accommodation by migrant workers.