Most households cannot afford an average priced apartment, study shows

Households on an average income could only afford to take a mortgage which financed 76% of an average-priced apartment in 2021, a study shows.

This means that most households could only afford to buy a flat costing €201,400 at a time when the average price of properties was estimated at €265,000.

An average-priced apartment is defined as a three-bedroom property without a view, located in the central, southern and north western regions. 

The situation was marginally better for first-time buyers where households on a 'mean income' of €35,125 could afford to take a mortgage which financed 83% of the price of an average-priced apartment. First-time buyers living on this income could only afford to fully finance a property costing €208,000. 

This emerges from the Construction Industry and Property Market report for 2022 carried out by KPMG, an audit firm, and commissioned by the Malta Developers Association.

The study shows that in 2021, a typical three-bed room apartment with no views in the central, north west and southern region was priced at €265,000 up from €254,000 a year earlier, while a typical penthouse was priced at €380,000 up from €354,000 in 2020. 

An affordability index (HAI) featured in the report shows that apartments became significantly less affordable between 2015 and 2019 but more affordable in the short period between 2020 and 2021, which coincided with the COVID pandemic.  

The index gives a value of 1 to households which have enough earnings to qualify for a mortgage.  In the case of apartments, the value declined from 1.1 in 2015 to 0.7 in 2019 and rose to 0.76 during the pandemic.  As regards penthouses the affordability index declined progressively each year from 0.8 in 2015 to 0.5 in 2021. 

An HAI value of less than 1 indicates that a household earning the median income would not qualify for a mortgage on a median-priced property.

Greater demand for property in Gozo and the south

The report suggests that affordability issues are pushing buyers towards less expensive regions with Gozo and the south of Malta increasing in popularity.

This is because the average asking price of a finished apartment in the southern region is 13% cheaper than in the central region, 30% cheaper than in the north harbour region and 33% cheaper than in the Grand Harbour region, which is the most expensive in Malta. The asking price for properties in Gozo is even cheaper.  The asking price for a finished apartment in Gozo is 20% cheaper than in the south of Malta.

Worse yet to come 

During the pandemic, housing became marginally more affordable but this trend could well be reversed thanks to the increase in construction costs which are expected to dent affordability in the future. 

This is attributed to the rising prices of raw materials, particularly steel, and higher transportation costs as a result of the invasion of Ukraine. Other factors that could push construction prices up are related to land prices and waste management.

Pandemic had major toll on demand for offices 

The report shows that between 2020 and 2021 the asking rental rates for office space decreased by 4%, down to €196 per square metre in 2021 from €204 in 2020. In contrast, the asking rental price for retail increased by 9% in 2021 when compared to the previous year.  

Moreover, the same period also witnessed increased demand for properties with outdoor space and home office space.

The report suggests that the increase in the uptake of working from home practices after the pandemic has impacted the demand for commercial real estate, leaving some stakeholders concerned with the decline in demand for offices.