Don’t call it a property bubble: developers say ‘some overheating’ in housing market

A study of Malta’s construction industry and property market highlights alarming increase in rent prices, fuelled by an increasing influx of expats, with rents rising at a much faster rate than property prices

Sliema: The most expensive region is the Northern Harbour region
Sliema: The most expensive region is the Northern Harbour region

Although there is no evidence of an imminent Maltese property bubble, indications of overheating come from a rental market at risk of prices increasing faster that property values.

The developers’ lobby Malta Developers Association said that in a report on the construction industry and property market launched today Thursday, the high demand for rental units was originating predominantly from expats.

“As such, this market is more susceptible to changing economic conditions, which may, in turn, affect property prices,: the report warns.

Average property prices rose by 24% between 2013 and 2016 with the average apartment costing around €228,000, though prices in the Northern Harbour region could be double those for property in other regions, the MDA said.

Garage space was nowadays calculated to add a 35% premium to the value of a property, while having the property directly on the seafront could raise its value by 50% to 70%, depending on the locality.

The most expensive region is the Northern Harbour region, whereas the South of Malta remains the cheapest, reflect in the fact that, in 2016, there were 5,500 property listings in the south compared to only 500 in the most expensive region.

The industry study, carried out by KPMG, concluded single individuals earning a median wage, or a couple where both parties earn the minimum wage, were likely to find a restricted supply of affordable properties.

KPMG recommended the setting up of a specialised working group to consider specific strategies applicable to these segments of the population and to address the supply gap at the lower end of the market.

The association said that the total direct, indirect and induced output from the construction industry was estimated to be around €2.55 billion. The industry’s contribution to Gross Value Added stood at €1.22 billion, almost 15% of total GVA.

Finance minister Edward Scicluna, who closed the conference, said that those who spoke of a property bubble did not know how the sector worked, because such a bubble only developed in the case of inflated speculation.

"As long as banks remain cautious and only lend money where really needed and not for speculation, the industry will continue to grow healthily," he said. "When demand is greater than supply, it is only natural that prices will rise, just as they go down when supply is great than demand."

Scicluna said that there was slight concern in the increasing trend of buying property off plan directly from the developers, since this practice was in fact a form of non-bank lending. More attention needed to be paid to the practice to ensure that people were aware of risks, since bad decisions could end up affecting whole families.