Malta’s property market has been in the headlines more often than usual over the past year. For better or for worse, Maltese people have always had a strong relationship with property and I don’t see that changing any time soon.
Historically, the Maltese prefer to be property owners if they have the resources. Owning property is part of our culture, you could say it’s in our DNA. The rate of homeownership in the Maltese Islands has always been high and stands at 78.8% for 2018 (NSO). Parents often help their children to become first time home buyers because home ownership is so important.
To demonstrate the robust nature of the market, we must look back on the 2008 financial crisis. This disaster caused the biggest disruption to the US market since the Great Depression and resulted in a 6-year slump in the UK housing market, not to mention the collapse of the Greek market. However, the global financial crisis had little effect on the Maltese property market, which remained stable.
A constant characteristic of the Maltese property market, which persists to this day, is the limited nature of available land for development. Before 2010, the supply of property available on the market was always limited. However, over the past decade, we have seen ‘the rise of the high-rise’, where new projects aim for the sky. Some fear this will result in the erosion of the Maltese cityscape, while others say that on an island the only way is up.
These high-rises are a relatively new product on the market. Whereas before, the luxury property was usually limited to villas and houses of character, now we are catering to the demand for luxury property in the form of lavish apartments and penthouses with spectacular sea views.
Over the past decade, we have experienced a boom in property investment. The increased demand for property had a knock-on effect, resulting in more units available on the market at various price brackets. Foreign interest and investment also increased during this time.
Now the landscape is changing. The growth of the property market has slowed down and prices, which until recently had been rising steadily, have come to a plateau, as observed in the Construction Industry and Property Market Report for 2019 prepared by KPMG. We believe that this is the industry returning to normal levels of demand following a period of strong performance. This is nothing more than the market correcting an unsustainable growth pattern, and far from a ‘bursting bubble’ as some have irresponsibly deemed it. It is important to note that demand for property is still relatively high, with buyers looking towards the Western and Central and Southern localities if their budget does not accommodate properties in the Harbour region.
Over the past 5 years, we have seen the rental market flourish like never before, due to an influx of foreign people choosing to make Malta their home, and the effective marketing of Malta as a tourist destination. This has resulted in an unprecedented rise in short and long term rentals.
We have seen the impressive results of a national effort to bring investment to Malta. Certain industries, such as tech, iGaming, and aviation among others, have attracted foreign talent. These expat workers and their families make up a significant section of the long term rental market. They tend to prefer living around the Sliema, St Julian’s, and Gzira areas. As these expats can afford to pay more for their accommodation, many Maltese who relied on renting their homes felt squeezed out.
There has also been a sustained increase in tourism due to the strategic marketing of Product Malta. Tourism has been a pillar of the Maltese economy within the past century, but it had never reached such high levels until now, in fact, “tourism has been increasing steadily over the past years and has more than doubled since 2009” (NSO 2019). We are seeing a strong link between the tourism and property markets, stemming from the emergence of the sharing economy. The success brought about by AirBnB-style private accommodation is another factor in the rapid growth of the rental market. The greater number of tourists visiting Malta has increased the demand for short term rentals. Since it is relatively easy to set up a tourist rental (hosts are required to obtain a licence from the Malta Tourism Authority), this really caught on in Malta. Those receiving income from short term rentals can opt to pay a reduced flat rate of 15% tax.
Now we are experiencing an unprecedented situation, the government has initiated regulation of the rental market. As of January 2020, short term rentals of 6 months, long term rentals of more than 6 months, and flatshare situations are regulated by the Private Residential Leases Act. The main changes introduced by way of this act are that all lease contracts must be registered with the authority, lease terminations have stipulated minimum notice periods relative to tenant and landlord, and failure to comply carries a penalty fee. Property sales & commercial property remain unregulated.
A new proposal will offer affordable rentals to low-income earners through the construction of 118 apartments in Fgura. These will benefit renters who were previously fell through the gap by not qualifying for social housing but not earning enough to afford the rent. This is a step in the right direction, however, we predict that 118 units will not be enough. We hope that the project is a success and justifies the further investment in similar endeavours.
Due to recent political developments, we expect to see a slowdown in the property market – one which has already been predicted in the KPMG market report. What is uncertain is how far it will go and how long it will last. The local market is strong; we have yet to see how the foreign market will react. However, we are not discouraged. As demonstrated from the economic crisis, Malta can weather a storm.
We need to attract upmarket residential and commercial investment from overseas. We must be proactive to reach and sustain the specialised luxury market. This is how we can undo the damage done to Product Malta. As a nation, we must unite and focus our efforts on rebuilding our brand and showing what makes our beautiful islands so special.
This article appeared in The Accountant winter 2020 edition published by the Malta Institute of Accountants.