Single persons cannot afford average Malta home

Single persons in Malta earning a median income of €21,000 a year are unable to borrow enough money to buy an average-priced housing unit on the property market, a new study shows.

The study, published last week by Grant Thornton and Dhalia, raises concerns about housing affordability in the Maltese market, which keeps registering rising prices in a construction-fuelled landscape.

With the average price for a finished housing unit standing at €259,000, single-person households simply do not have the borrowing capacity to buy their own property, which always requires a 10% deposit for banking finance.

A single person on a median income looking to buy an average-sized property in Malta can only borrow around €160,000 from a bank to fund their purchase. This is almost €100,000 below the average price of a housing unit in Malta.

Two-adult households have more luck in getting a foot in the property market. With a median income of €40,000, a two-adult household can borrow around €304,000, exceeding the market price for an average housing unit by around €40,000.

But the report flags that there is a significant number of two-adult households that earn salaries below the median income level. If the two people earn a minimum wage, they can only borrow around €145,000, rendering the average housing unit unaffordable.

Property prices differ significantly across the different regions, with the cheapest prices in localities like Marsa, Ħamrun and Gozo. In these areas, house prices can go as low as €165,000, making it affordable for two-adult households earning a median income.

Yet even here, a one-adult household with a median income cannot afford properties priced in the lower quartile of the distribution, neither can a two-adult household earning the minimum wage.

While the two-adult household on median income can afford the average property in Malta, rising interest rates could throw a wrench in the works. In response to high inflation, the European Central Bank has raised interest rates by 350 basis points to over 3%. Meanwhile, HSBC Malta has already increased the interest rate on home loans by 40 basis points.

At such an increase, a two-adult household on median income would at maximum be able to afford around €287,000 in a home loan, marking a €17,000 decrease in affordability.

If banks increase the interest rate on lending by 120 basis points, a two-adult household on median income would be priced out of the property market.

Apart from affordability, the Grant Thornton and Dhalia study found that housing prices are still going up, but are doing so at a slower pace. But this does not mean that prices will go down any time soon.

Despite the slow growth rate, prices still remain higher than what they were in 2019. Housing prices were going up at an average rate of 15% per year up until the pandemic. Since 2020, prices have still grown, but at slower rates.

Rental prices grew by 8.7% in the second half of 2022, and remained more or less the same during the first three months of 2023. This marked a full and sustained recovery from the decline in rental prices during the COVID-19 pandemic.

A separate study published in October 2022 painted a similar picture of housing affordability. Households on an average income could only afford properties priced at €201,000, while the average price is €259,000.

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.