Rise in prices closing off property market for median wage earners

A minimum of €20,000 annual gross salary income is required for an individual or family to buy property in Malta, a Central Bank study has revealed.

This wage only enables buyers to purchase property in the cheapest regions of Malta, with banks required to enforce such loan requirements.

This information is part of a White Paper on housing that will be backed up by the Central Bank study.

The average yearly salary in Malta was €18,945.26 in 2018.

The study says that older buyers can only acquire smaller and cheaper properties as they age due to banking loan restrictions for senior clients.

Using an online home loan calculator for a gross annual income of €20,000, the study will show that the chances of entering the property market are quite bleak for low-income earners.

If a 34-year-old individual with a gross annual wage of €20,000 was to try and get a loan from BOV, the maximum amount granted by the bank would be €117,918, provided that the individual had enough saved for the front finance.

If that individual were to try and get a loan from APS, only €96,611 would be provided by the bank.

When comparing such figures to property prices around the country, one would realise that such an amount would not provide an adequate environment which attracts people to the market.

This situation creates an environment where people are gridlocked into the rental market, with little or no chance of entering the property market.

The rise in property prices as a result does not only affect low-earning families, but also households whose take-home pay would be more lucrative – a phenomenon that is impacting the middle-class.

The situation has generated a sharp increase of tenants who are not poor enough to benefit from social benefits, but not rich enough to live a comfortable life.

The White Paper on housing is expected to be published with the coming Budget.

The study was proposed during last year’s Budget, when the government proposed a White Paper which would be tackling various issues surrounding the housing sector in Malta.

The White Paper is expected to review how a contract would impose a reasonable minimum rental period, while retaining flexibility for the tourism market and short lets.

Proposals will include the possibility of implementing a deposit retention scheme that will minimise abuse in the handling of deposits by landlords.

The White Paper also aims at further enabling tenants to take action against landlords who breach rules. One of the mooted Budget proposals had been a pilot scheme for the obligatory registration of rental contracts, which would regulate the increase in rental prices over the duration of a contract.

Prime Minister Joseph Muscat has already declared that the White Paper would be the first step in tackling the problem of rising house rents. “While respecting the market we want to offer guidance to achieve a balance that respects social justice,” Muscat had said.

And in a pre-budget meeting with the developers’ lobby, Muscat made reference to the White Paper, warning that it would be “controversial”.

“There will be things you won’t like, other things other sectors do not like, but we have to address this issue,” he said.

The White Paper has not yet been made public.

A Global House Price Index published in September by Knight Frank LLP, showed that home prices in the island rose 17 percent in the three months to June from a year earlier, edging out Hong Kong with the highest residential price gains.

The Nationalist Party (PN) last August came out saying that the primary cause of rising prices in the property market is the lack of planning and the pro-immigration policies adopted by the current administration.

The government will be introducing an equity sharing scheme in an effort to facilitate home ownership, a source has told MaltaToday.

Equity sharing is a scheme where the cost of buying a home is shared between equity partners.

This equity partner contributes to a certain percentage of the property’s purchase price, which in turn entitles one of the partners to a share of the property’s increase or decrease in value over time.

The previous Nationalist Party administration had introduced an equity sharing initiative, with amendments and restructuring being later on proposed.

It was later stopped.