Property prices up by 67% since 2001, leaving average-wage earners behind

Property prices have gone up by a significant 67.2% between 2001 and 2015 and show no sign of slowing down.

The latest data from the Central Bank also shows that between the first quarter of 2016, and 2013 – since Labour was elected to power – property prices have already gone up by 24.8% in just three years.

This compares with the 34.6% boost that took place between 2003 and 2008, when Malta became an EU member state in 2004 (prices skyrocketed by 20%in that year alone); and the price decrease by 0.2% between 2008 and 2013, effectively crowning the ‘austerity’ season that spilled over from the rest of the EU.

Since 2001, real estate value shot up by around 67.2% with the rise most pronounced for terraced houses, whose average price went up by 73.5%, and for townhouses, villas and houses of character, which witnessed a collective rise of 75.2%. 

The most significant moves in real estate value came in the wake of Malta’s decision to join the European Union in 2003 and in the time following Labour’s return to government in 2013.

Indeed, property shot up by 13.3% in 2003, by 20.3% in 2004 and by 9.8% in 2005. 

After a relative lull, punctuated by drops in value in 2008 (-2.7%) and 2009 (-5%) as a result of the global financial crisis, property prices picked up again in the first two full years under the incumbent Labour government – by 7% in 2014 and 6.3% in 2015.

The Central Bank’s most recent figures show that property prices continued to soar this year – up by 6.6% in the first quarter of 2016, when compared to the same period last year. 

At an EY property conference earlier this year, 63% of the audience members voted in a straw poll that Malta’s property market was “unsustainable”.

Economist Marie Briguglio warned that Malta’s property market cannot maintain its rise, as it has been affected by one-off events such as the asset repatriation programme, the sale of citizenship programme, and the high rate of skilled and low-skilled immigration to the island.

Indeed, data recently tabled in Parliament shows that a total of €189.4 million in property was sold to foreign buyers, comprising a total of 280 units. That represents a massive 167% jump over 2014, when 208 units were sold for a total of €70.7 million to foreign buyers.

The huge rise was largely triggered by the Individual Investment Programme, which requires new citizens to invest at least €350,000 in property. “As it stands, we’ll need to keep attracting more and more foreigners to Malta to keep the property market sustainable,” Briguglio told the EY conference. 

The Central Bank has also flagged a tax exemption scheme for first-buyers as a key factor behind this recent rise. Launched to allow people to save up to €5,000 in stamp duty when purchasing their first property, the recent rise in prices raises questions on whether the scheme is actually allowing first-time buyers to save money or merely fattening the pockets of property dealers.

Malta Developers’ Association president Sandro Chetcuti has dismissed warnings that the property market is a bubble about to burst, arguing that property remains the most solid investment on the island. However, he has called for the publication of selling prices of land and properties on a location-by-location basis, so that inflation can be better monitored.

What property can an average salary buy you?

Malta’s home ownership remains particularly high – with the most recent Eurostat figures placing it at 80%, compared to the EU average of 70.1%.

However, there is growing concern that the property market is pricing more and more people out of buying their own home. Indeed, the steep rise in real estate value over the past 14 years has not been balanced by similar gains in people’s salaries.

National statistics show that the average salary on the island only increased by 42.8% between 2001 and 2015 – from €11,443 to €16,882. The 15.4% rise in property value between 2013 and 2015 has only been countered by an 8.87% increase in the average national salary. 

HSBC’s online home loan calculator shows that the bank will lend a 30-year old buyer on an average salary between €67,500 and €101,000 to buy a house, assuming no other monthly financial commitments. A quick glance at the Classifieds section in the last week’s issue of the Sunday Times of Malta newspaper makes it clear that this loan would be well out of range of most of the advertised properties for sale on the island.

Indeed, out of 429 advertised properties, only 28 fall within that category – the majority of which are located in the south-east and north-west of Malta and on Gozo. Only six were listed as available in the centre of the island – a house of character in Birkirkara, a ground-floor maisonette in Hamrun, two apartments in Msida, an unconverted townhouse in Qormi, and an apartment in Pieta.

The popular north-east region appears all but inaccessible for an average-income earner relying solely on a bank loan, with a search on the websites of five main real estate agencies on the island (Remax, Perry, Dhalia, Frank Salt and Simon Mamo) only revealing five available properties in that region – a townhouse in Sliema, a ground-floor maisonette in St Julian’s, and three one-bedroom apartments in Sliema, Gzira and San Gwann, and a townhouse in Sliema.