The state of health of the housing market interests economic and social policymakers as it impacts growth prospects, labour market developments and the well-being of the community in general. The Maltese have a long-held conviction that property investment is the best investment as it protects personal wealth from inflation’s ravages on other assets like financial products.

A study carried out by Grant Thornton in collaboration with Dhalia has revealed some staggering information on how house prices have risen in the last decade. An average property that sold for €100,000 in 2013 would be selling at €200,000 in 2022 – a 100 per cent increase. Those who own property and have no mortgage to repay will indeed feel wealthier.

For many others who still have to put their foot on the first rung of the property ladder, the rapid rise in property prices is certainly not good news.

There has been endless commentary attempting to explain the long housing boom in Malta. The availability of cheap money to buy property has undoubtedly been a significant factor.

Over the past several years, banks have promoted the use of loans to purchase property as an investment. Some traditional investors with significant bank balances that paid no or minimal interest were lured into taking mortgages to buy expensive second or third properties that they leased mainly to foreign workers attracted to the country by the booming economy.

With interest rates expected to increase significantly in the coming months and years, those with mortgage interest rates pegged to the European Central Bank rate will see their repayment commitments increase. The Central Bank of Malta has warned against this risk. While, in most cases, those with second home loan commitments may be able to absorb the increased repayments by dipping into their savings or reducing their non-essential consumption, for some others, forced sales may depress the property market.

While the risk of financial turbulence could be avoided, some economists argue that households’ willingness to spend has some relationship to wealth as well as to income. If house prices fall markedly, some decline in consumption is likely. This is not good news for those policymakers who have projected economic growth for the coming years based on increasing private consumption. 

The Grant Thornton report has argued that the “future for the housing market is challenging”. This is based on the belief that the housing market could expect a “further downward pressure on prices” due to supply outweighing demand.   

The flaws in the economic model adopted by the country in the last decade are well known even if the government fails to acknowledge them and much less define strategies to inject more sustainability into this model. Cheap money, cheap imported labour, a laissez-faire attitude to the approval of speculative building projects and reliance on high-risk economic activities fuelled by low taxation are the Achilles heels of the current economic strategy.

Increasing global economic uncertainty, high inflation – especially for energy and building materials – and rising interest rates are new realities that need to be addressed in all sectors of the economy, not least the property development sector. 

These factors will, undoubtedly, dampen consumers’ demand for property. The government should prioritise its social and environmental commitments by supporting first-time buyers rather than easing pressure on property developers who must downgrade their profit expectations.