The great rent revolution

The property game used to mean pulling down townhouses and erecting five-storey apartment buildings. But things have changed at quite an unprecedented pace. From sites like AirBnB allowing hassle-free renting, to second properties being snapped up for rent by… “someone in the gaming business”, it’s no longer buy-to-sell anymore: it’s buy-to-rent.

Just in August, the advertised property price index compiled by the Central Bank showed an increase of 6.7% in real house prices in 2014, the highest growth since 2005. It was the first time the property price index surpassed the pre-crisis peak reached in mid-2007.

But the big money-maker became the letting market. Homeowners climbing up the property ladder are holding on to their two-bedroom apartments, and their rental income pays the mortgage. 

This is thanks to a combination of factors, driven partly by a surge in foreign labour attracted by the stability of the Maltese economy during the financial crisis, and the convergence of high-value service industries that have made Malta their base.

Sara Grech, a real estate leader and today the CEO at Engel & Volkers, is quite categorical on the way others’ misfortune became Malta’s gain, pointing out how foreign workers pushed out by the 2008 credit crunch came to Malta in search of jobs.

“Italy, Ireland, Spain, Portugal, and most recently Greece are still experiencing an economic downfall which is forcing their locals to emigrate to more stable countries such as Malta. Apart from financial instability, political turmoil in Northern African countries such as Libya has led to a large number of immigrants to reside on our shores.”

Add to that those sectors that were attracted to the island by a low-tax regime, like gaming and finance, and customer back-end offices that required foreign speakers and translators. “People from abroad are getting the nod on Maltese workers… we enjoy one of the world’s best work-life balanced environments together with a strong economy which attracts a large number of expats.”

Stefan Consiglio, manager at Pierre Faure Real Estate, agrees that the recession and unemployment in the so-called ‘PIIGS’ nations pushed highly-skilled jobless to Malta, creating a demand for property he believes has pushed prices by about 25% in the last 12 months.

“A Sliema-St Julian’s flat can cost €550 to €6,000 monthly: obviously different earners will look for different standards. The majority are tenanted by foreigners working full-time but these could range from barmen and waiters to directors of large companies. What is interesting is that the demand is high on the whole range,” Consiglio says.

“The focus has been on making Malta a hub for iGaming, financial services and now also IT companies,” Malta Sotheby’s International Realty associate Miguel Bonello says, who also includes the Individual Investor Programme and other relocation programmes such as the Global Residence Programme whose residency requirements include mandatory property purchase and leasing.

“It is confined to mainly foreign workers… in the long run it could also lead to clients taking up residency in Malta and investing in property.”

Bernard Bugeja, managing director of Bernard’s Real Estate, however adds that the letting trend has also been added by laws amended in favour of landlords allowing them to rent out to locals without risk of being unable to evict them. “This paralleled with prices soaring in the most sought-after areas, pushing low-income earners, most especially first-time buyers, to rent as opposed to buy.”

But apart from the increase in foreign labour and demand for office space, something borne out by the record 347 development permits issued for warehouses and offices in 2014, Bugeja says that tighter bank credit and increased marital separations are also push factors for the rental market.

Property rental’s big draw is the newfound yield on investment – Sara Grech puts it at 5-7% annually, Bugeja reckons it’s at 6-8% – something no longer possible with fixed savings accounts, shares or bonds. “Property ownership has always been part of the Maltese lifestyle. Nowadays people are buying rental units or even building rental developments in prime strategic locations,” Grech says.

The response has been phenomenal. Consiglio says 10 years ago he’d show one client up to 10 properties to choose just one. “Over the last 18 months, especially with lower to mid-range properties, you can have a long list of potential tenants waiting for the same property. When a landlord notices this sort of demand, it is only instinctive to raise the price.”

So investors and contractors are now finding it “more ideal to hold onto their stock and rent them rather than sell,” Consiglio says, with some companies acquiring entire apartment blocks to rent out to their own staff.

Bernard Bugeja says the buy-to-let market is on the up while money sitting in banks stays worthless. “Prices in upmarket areas like Sliema at one point rose by as much as 30% in one year, shifting investment for buy-to-let properties on the peripheries like Gzira or Msida.”

Bugeja says that even villas are now being targeted. “They are purchasing single detached units in good areas for demolition to construct three or four smaller villas on the same footprint to rent them out. Some developers are even holding on to their properties to rent them out instead of selling.”