People paid very low rates for rentals in the past, which could have been masking the true extent of poverty, economist Gordon Cordina has said.

Addressing a conference on rents organised by the Malta Institute of Management, he warned that the government should not underestimate the impact of rising rental prices.

“The government needs proper data if it is to lead an orderly development of the market. Data will prevent perceptions being formed that may be incorrect. What we need are credible benchmarks of what is really going on,” he said.

The need for data was also raised by Nationalist Party property market spokeswoman Marthese Portelli.

She said policymakers should adopt a strategic approach to prevent bubbles, to maintain positive aspects of the sector and to help the vulnerable

With the population forecast to rise to 600,000 within the next 15 years, which Dr Cordina said was at the limit of Malta’s capacity, the important thing was to go for quality that would endure once the economy started to level off or slow down.

“We need to ensure a prudent investment approach that assumes more realistic settled market prices, which would be sustainable under any economic conditions,” he said.

“The property sector is €1 of every €20 of GDP and €1 of every €30 of government revenue, so the government had a deep interest in the sector” Dr Cordina added.

The conference was opened by Parliamentary Secretary for the Property Market, Chris Agius, who admitted that the private sector needed incentives to get involved in the provision of affordable housing, with a public-private partnership being a possible model. An incentive he mentioned was the possibility of allowing higher building density.

He warned that policymakers had to beware the unintended consequences of intervention in free markets. The government had various options – such as extending development zones – that would moderate the cost of land.

However, Mr Agius ruled out the possibility of expropriating private land, saying this would put a brake on the economy and have “devastating effects” on the market.

“We need to protect private property ownership from unjustified interference by the State,” he said, confirming that the government was reluctant to go down such road.

Kevin Buttigieg, of ReMax, gave insight into what was happening in the rental market on the ground, saying properties outside Sliema and St Julian’s were now sought after, spreading the benefits across a wider group of owners.

He dismissed reports that the cost of rentals was increasing out of control, saying that, while the lower end of the market was seeing increases, the higher end was actually levelling off.

“People worry that we are getting expensive. But other financial jurisdictions are still more expensive,” he said.

“And bear in mind that 60 per cent of the European market is unfurnished while here properties have very good inventories,” Mr Buttigieg added.

Fact file

Economist Stephanie Vella gave some numbers to put the prevailing situation into context:

▪ 2006-2008 saw much higher growth in prices than in 2016-2018. They rose by as much as 25 per cent.

▪ The actual selling prices are levelling off while advertised prices are still going up.

▪ The average rise in prices may be misleading because the lower end of the market is seeing rises of five per cent while the segment aimed at the higher end, international market is rising by 25 per cent.

▪ House loans were up by 14.7 per cent during the 2006-2008 spike but they are now 7.9 per cent, so the market is being more cautious.

Kurt Xerri, from the Department of Civil Law at the University of Malta, also gave some figures:

▪ 29 per cent of rentals come from the gaming sector, according to a major estate agent.

▪ There were 500,000 more tourists in 2017 than in 2105 – most of the increase is being absorbed by private accommodation as the number of hotel rooms has not gone up fast enough. This is taking up the stock of property available for long lets.

Denis Camilleri, a managing partner with DHI Periti, analysed the ownership structure over the decades:

▪ Just under a quarter owned their home in 1948, rising to 77 per cent by 2011.

▪ In 1997, the return an investor could expect from rental was seven per cent but this was because property was underpriced. The true return now, after management costs, maintenance and vacant periods, was 3.5-4 per cent.

▪ Between 2002 and 2005, prices went up by more than 50 per cent – his definition of a bubble – which also happened between 2015 and 2018.

▪ A price-to-earnings ratio of over six could indicate a small bubble and above 10 a big bubble. In 2018, the ratio was 6.41.

▪ A housing affordability index of under 100 is an indicator that there are problems. Ownership grew for decades when it was below 100, mostly because of households’ extra income. It had gone up to around 130 but the impact of rising prices has now brought it down to 105 but still in the ‘affordable category’


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