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Malta’s real estate market: up or down? – Chris Grech

10 Feb 2020 11:21 | Deleted user
The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
Owning property is part of the Maltese culture, you could say it’s in our DNA. The rate of home ownership in the Maltese Islands has always been high, standing at 78.8% in 2018 (NSO).
A quick look at the 2008 financial crisis is enough to highlight the robust nature of the local market. The global downturn which caused the biggest disruption to the US market since the Great Depression and resulted in a 6 year slump in the UK housing market, not to mention the collapse of the Greek market, had little effect on the Maltese property market.
Over the past decade we have experienced a boom in property investment. The increased demand for property had a knock-on effect, resulting in more units available on the market at various price brackets. Foreign interest and investment also increased during this time.
A constant characteristic of the Maltese property market is the limited land available for development. Over the past decade we have seen ‘the rise of the high-rise’, where new projects aim for the sky. These high-rises are a relatively new product on the market, substituting villas and houses of character to cater to the demand for luxury property with spectacular sea views.
Now the landscape is changing. The growth of the property market has slowed down and prices, which until recently had been rising steadily, have come to a plateau, as observed in the Construction Industry and Property Market Report for 2019 prepared by KPMG. We believe that this is the industry returning to normal levels of demand following a period of strong performance, and far from a ‘bursting bubble’ as some have irresponsibly deemed it. It is important to note that demand for property is still relatively high, with buyers looking towards different localities if their budget does not accommodate properties in the Harbour region.
The rental market
Over the past 5 years we have seen the rental market flourish like never before, due to an influx of foreign people choosing to make Malta their home, as well as a tourist destination. This has resulted in an unprecedented rise in short and long term rentals.
We have seen the impressive results of a national effort to bring investment to Malta. Certain industries, such as tech, iGaming, and aviation among others, have attracted foreign talent who, together with their families, make up a significant section of the long term rental market in the areas around Sliema, St Julian’s, and Gzira. This has led to an increase in rental prices, often to the detriment of the local renter who cannot afford to pay such high rates.
Tourism, for many years a pillar of the local economy, has recently seen a sustained increase due to strategic marketing of Product Malta with very positive results - “tourism has been increasing steadily over the past years and has more than doubled since 2009” (NSO 2019). We are seeing a strong link between the tourism and property markets, stemming from the emergence of the sharing economy. The success brought about by AirBnB-style private accommodation is another factor in the rapid growth of the rental market, with a marked increase in the demand for short term rentals. Since it is relatively easy to set up a tourist rental (hosts are required to obtain a license from the Malta Tourism Authority, as well as the possibility to opt for a flat tax rate of 15%), this has really caught on in Malta.
In view of this unprecedented situation, the government has initiated regulation of the rental market. As from January 2020, short term rentals of 6 months, long term rentals of more than 6 months, and flat-share situations are regulated by the Private Residential Leases Act. This means that all lease contracts must be registered with the authority, lease terminations have stipulated minimum notice periods relative to tenant and landlord, and failure to comply carries a penalty fee. Property sales & commercial property remain unregulated.
The government has also embarked on a project offering affordable rentals to low income earners in Fgura. While this addresses a market gap, the number of units being proposed will go a very short way to address this issue. Hopefully, the project is a success and justifies further investment in similar endeavours.
What are our predictions for the future of the Maltese property market?
Due to recent political developments, the slowdown in the property market predicted in the KPMG market report will persist. What is uncertain is how far it will go and how long it will last. The local market is strong; we have yet to see how the foreign market will react. However, we are not discouraged. As demonstrated by the economic crisis, Malta can weather a storm.
In order to mitigate this slump, we need to attract upmarket residential and commercial investment from overseas, while proactively reaching and sustaining the specialised luxury market. As a nation, we must unite and focus our efforts on rebuilding our brand, showcasing what makes our beautiful islands so special.

Chris Grech established Dhalia with his brother Mark in 1982 as a small estate agency. Chris Grech has actively held a leadership role for 35 years, while also managing other investments locally and in Bulgaria.
               
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