Higher property prices cushion falling sales as rents increase

Demand for homes continues to exceed available supply, yet high prices are increasingly putting prospective buyers off completing purchases, according to a Central Bank of Malta report.

At the same time, rental demand is pushing rents higher.

This emerges from the Central Bank of Malta’s Business Dialogue report for the third quarter of 2026, prepared by the bank’s Economic Analysis Department.

According to the report, contacts in the real estate industry reported high levels of activity across both property sales and rentals. However, deteriorating affordability has made sales conditions more “challenging”, resulting in fewer completed transactions in several market segments.

Despite lower sales volumes in some sectors, higher property prices have compensated for the decline in transactions, helping sustain overall market revenues.

“As regards property sales, there were remarks of weaker affordability and more challenging sales conditions, although higher property prices had in some cases compensated for lower transaction volumes,” the Central bank report states.

The affordability barrier is also adding to pressure on the rental market, as prospective buyers unable to afford property purchases turn to renting. Demand for rental accommodation continues to exceed available supply, particularly in the long-let segment.

This imbalance was further aggravated during the summer months as landlords converted residential properties from long-term leases to short-term tourist accommodation.

The report explicitly states that “the conversion of long-let units into short-term accommodation during the summer may reduce the availability of rental properties and contribute to higher rents in the long-let segment”.

Strong activity despite affordability pressures

Despite the slowdown in completed sales, construction and real estate remained among the strongest performing sectors in the Central Bank’s survey of local non-financial corporations.

Around three in four businesses in the sector reported an expansion in activity during the third quarter. While 20% reported worsening conditions, the net balance of firms reporting an expansion remained positive at 50%, down from 56% in the previous quarter.

Demand remained strong across property development, residential accommodation and commercial real estate. Contacts in the office market, in particular, reported good demand, with several premises operating at full capacity.

The sector also registered the highest level of business optimism across the Maltese economy, with a net balance of 70% of firms expecting activity to expand over the coming months.

Businesses expect strong sales and rental demand to persist, supported by continued shortages in available supply.

Rising costs and labour shortages

Operating expenses remain a major concern. Higher transportation costs and raw material prices were identified as the main drivers of increases in non-labour expenses.

The Central Bank noted that construction and real estate had the highest proportion of businesses across all sectors expecting very significant increases in unit costs, with 19% anticipating rises exceeding 5% over the next 12 months.

Labour shortages are adding to the pressure, with the availability of skilled workers cited as a major operational constraint. Businesses face difficulties recruiting and retaining staff, fuelling competition for workers and pushing up wage expectations.

Construction firms also identified regulatory and bureaucratic constraints as major obstacles to their operations. A shortage of large public tenders was another concern for contractors seeking opportunities to undertake major projects.

Despite rising input costs and weaker sales volumes, the sector demonstrated considerable resilience in profitability. Construction and real estate was the only sector in which no businesses reported a deterioration in profit mark-ups.

Investment and employment prospects also remained positive. A net balance of 20% of businesses intend to increase capital expenditure, focusing on property development, business expansion and IT infrastructure upgrades.

Employment expectations were similarly encouraging, with a net 40% of firms planning to increase their workforce, while the remaining businesses expected staffing levels to remain unchanged.