House prices ‘undervalued’ by about 5% in 2025, Central Bank says

House prices were undervalued last year when compared to economic fundamentals such as GDP growth and inflation, according to the central bank’s annual report.

The report said house prices remained below the level consistent with fundamentals in the first three-quarters of 2025. This was mainly driven by the house price-to-hypothetical borrowing ratio, a modelled estimate of the maximum mortgage a household could realistically obtain, and the housing investment-to-GDP ratio, which reflects how much of the economy’s total output is being channelled into building and buying property.

According to the report, the two ratios made the largest negative contributions to the house price misalignment index. 

The central bank publishes findings from its estimated house price misalignment index every quarter to assess whether property prices are deviating from their underlying fundamental value. Its data shows that house prices in the first three-quarters of 2025 were undervalued by around 5%. 

In Malta, property prices have only been overvalued during periods of relatively weak economic activity, as property prices rarely adjust downwards to reflect this. These included a period between mid-2006 and mid-2010, in the run-up to and during the 2008 financial crisis, and during the COVID-19 pandemic in 2020 and 2021. This is because property prices tend not to adjust downwards in such circumstances.

In an opinion piece last December in the Malta Business Weekly, the now-governor of the central bank, Alexander Demarco said the figures show there are no signs of speculative bubbles in the property market but the indicator is limited in assessing affordability. 

Slower

The central bank’s annual report also refers to the National Statistics Office’s residential property price index (RPPI), which is based on actual transactions involving apartments and houses. 

In the first three-quarters of 2025, the index increased at an average annual rate of 5.7%. This is a slower pace compared to the 6.7% increase recorded throughout 2024. 

The central bank also found that the annual rate of change of advertised rents eased in 2025 to between 4% and 5.1%. The information was collected from internet sources.

The central bank said increased property prices were largely supported by a dynamic tourism sector and continued migrant worker flows, which support demand for accommodation. It also referred to various government schemes aimed at first-time buyers in the property market.

The report also said that the number of foreign workers leaving the country decreased in 2025. Despite this, there was still a net inflow of foreign workers and the stock of foreign workers in September 2025 increased to 131,277 from 120,194 a year earlier. 

While most non-Maltese workers were employed in services and sales jobs and elementary occupations, the largest increases in absolute terms were recorded among technicians and associate professionals, apart from the services and sales jobs. Increases in elementary occupations were more limited, which differs from previous trends. “This means that, while the proportion of technicians, associate professionals, managers and professionals has increased, the share of elementary occupations has gone down, indicating a shift towards more highly skilled positions in 2025.”