To bubble or not to bubble

Average rental prices in Malta have risen by 47% between 2013 and 2016, according to a worrying report published this week. The KPMG report, which was commissioned by the Malta Developers Association, says prices rose so sharply as a result of high rental prices to expats who are being charged what they can afford to pay.

It also warns that the rental market is “overheating.”

Speaking of the increases in percentage terms might not convey the true extent of the situation, but the actual numbers do.

For example, a 45% increase in prices in the central district means that prices rose from an average of €565 to €822. That is more than the minimum wage. Prices in the Grand Harbour region rose from an average of €751 to €1,118.

The report remarked that in some instances, rental rates were being increased in a “bidding war” between potential tenants.

Perhaps one of the most concerning findings of the report is the lack of affordable housing. Affordable to the Maltese, that is.

In 2013 properties priced at lower than €400 per month accounted for 11% of the sample size. In the 2016 sample there were no properties priced below €400. This is especially worrying for low-income families and single parents.

The report noted that there is a shortage of properties priced €400-€700 and the demand for this bracket far exceeding supply. On the

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other hand there is a high supply for apartments priced €1,500-€3,000, but demand is low. This is a clear indication that landlords are vying for maximum profits.

Closing the conference, Finance Minister Edward Scicluna said the government acknowledged the rental sector problems and had introduced certain measures, but on the other hand tried to downplay the situation by remarking that only 16% of the Maltese rent property. The other 84%, the minister was eager to point out, are homeowners. While the government should be more sensitive to those 16% and stop treating the issue as a numbers game, one should also remind the minister about the KPMG report’s disconcerting findings on the sale of property in Malta.

Firstly, the price of properties rose by an average of 24% between 2013 and 2016. While it is true that salaries have increased over recent years, they definitely did not increase by a quarter.

Again, the bracket of properties that is most in demand, those priced €100,000-€150,000, are most in demand, but supply is very limited. “Individuals earning a median wage or a couple where both parties are earning the minimum wage are likely to find difficult in finding affordable properties,” the report states.

The minister’s reply to this was to state that Malta was not among those ten EU member states where property prices had increased by more than 6%. Again, the numbers game.

Scicluna insisted that there is no signs of a property bubble in Malta. He gave a simplistic explanation to the current situation: “There is a high demand for property and the market is reacting by constructing more homes.

“The construction industry is significant and one has to take care of it even because it affects many individuals and important sectors, like the banks,” Scicluna proclaimed.

Ironically, the conference the minister was addressing was organised by Property Malta, a public-private initiative whose main aim is “to promote Malta’s lifestyle identity and to position the country as a leading destination of choice for everyone interested in purchasing property in the Mediterranean,” according to its chairman, Sandro Chetcuti (of ‘make hay while the sun shines’ fame).

Without mincing of words this means that the agency aims to entice more wealthy individuals to invest in more expensive property in Malta. Which is one of the main driving factors behind the ever-increasing prices of property, the deprivation of affordable property for the Maltese and destruction of Malta’s shrinking natural environment. It could also lead to the creation of ‘ghost towns’ – empty properties that there is simply no demand for and, as a result, remain empty.