Many of those on an average income are struggling to find affordable places to live. Ramona Depares finds that, while some are ready to sacrifice their financial independence, others may just decide to pack up and leave.

Amid calls for new incentive models or the extension of development zones, Malta continues to see a sharp spike in property prices, with first-time buyers of medium income and no access to ready capital finding it harder to get on to the property ladder.

And many are lamenting that average salaries in Malta do not reflect the changing market realities, with the traditional bank loan system that is typically granted to young buyers failing to cope with the increased investment required.

Karla* and Matthew* are one such couple whose combined annual income of €55,000 is not cutting it. Still in their early 30s, the two started consciously saving up for a deposit on their first property about a year ago – to date, they have not managed to find a suitable place that is within their budget range of €160,000.

“One year on, we are getting disheartened. We were not expecting to find somewhere suitable overnight, but after months of searching we have not found even one place that is anywhere near our requirements and within budget. We are very aware of market constraints, so it’s not like we are putting down unreasonable or extravagant requests,” Matthew says.

His partner agrees, adding that initially they had been looking for a two-bedroomed house somewhere around the south of the island but that they have since had to “re-evaluate their situation”.

What Matthew finds particularly frustrating is that the quality of the housing offered does not even correspond to the prices that are being set; he adds that since he started house-hunting he has come to appreciate certain problems like littering or a poor air quality.

The quality of the housing offered does not even correspond to the prices that are being set

“Yet, despite the dodgy surroundings, prices remain expensive even in what I can only term as inferior locations. Knowing I can buy a cheaper house in another country where I don’t have to spend my entire life paying for a small apartment makes me wonder why I should even look at buying a house here in the first place. These properties will not be worth their current price in 10 years’ time,” he says.

Although, initially, the couple had been hopeful of benefitting from incentives that are given to first-time buyers, it didn’t take them long to realise that these incentives don’t suffice.

“Would you say there are incentives to help first-time buyers? Yes, but I think they’re not catered for this new market that Malta is experiencing.”

He adds that the bank loan that they will undoubtedly be expected to take is another source of worry.

“Banks are willing to give out very large loans, which I find worrying. Renting is not really a viable option, for obvious reasons. Unless that particular market gets a serious revamp in regulations, I would describe it as daylight robbery. Rental prices are extortionate.”

Karla and Matthew are now seriously looking around for job offers away from Malta. Having carried out some research, Matthew tells me that he feels some countries in the EU still offer reasonable property prices.

“For the same price of a shoddy apartment in a polluted area in Malta, I can get a decent two-bedroomed house in an area that is cleaner and not over-populated. We are still doing our workings, but it is certainly an option that we are thinking seriously about,” he concludes.

Angela*, 36, echoes his words almost verbatim.

“I have just signed a promise of sale agreement, together with my boyfriend, for a two-bedroomed apartment in Mosta. We paid €180K for a semi-finished property; between the two of us we had enough for the €18,000 down-payment but we had to borrow money for notarial fees, bank fees, taxes and insurance from my boyfriend’s parents,” she tells me.

The remainder of the price will be covered by the bank loan, with monthly repayments of €700. And yet, Angela’s biggest worry is not the 30-year-long financial commitment, but something else altogether.

“My boyfriend and I had not really been planning on buying property together, for now; we have only been dating a few months. However, we are both in our mid-30s and a friend who works at the bank pointed out that we were on the older side, and that we would not manage to get a big enough loan to cover our budget if we left it any later.”

She admits that the realisation she is now effectively as tied to her boyfriend as if she had married him sobered her up significantly.

“It is not a commitment I was really ready for, in all honesty. In an ideal scenario, we would each have bought property separately, so that in the event of a break-up, the financial fallout would not be too bad.”

So why did she go down the road of joint ownership?

“We simply do not make enough money to qualify for individual home loans. I net about €2,000 a month while my boyfriend makes a little bit more than €1,500.”

“The amount that the banks were willing to lend us individually was risible, it would barely get us a studio apartment. Combining our finances made more sense than buying two inferior properties that aren’t even a good investment, let alone a decent place to live in,” she says.

The one silver lining is that the process for taking a home loan is fundamentally straightforward, as an HSBC spokesperson explained. Potential buyers are advised to call at their bank to see how much they would be able to borrow before going out viewing properties. This makes the process of setting a budget much simpler and avoids nasty surprises after finding the place that could be ‘the one’.

Encouragingly, half the home loans issued by HSBC Malta are issued to an individual, as opposed to a couple.

“It is quite realistic for the average income-earner to apply on his/her own. But the bank does ensure that customers will be able to afford repayments, even in the event of changes to the economy or their personal circumstances.”

Asked whether any age limits are imposed, the spokesperson explains that home loans are repaid over a maximum term of 40 years and need to be repaid by the time the customer reaches the age of 65.

“Someone who defers buying their first property until age 40 may still be able to take a loan with a repayment term of 25 years.”

I think the incentives are not catered for this new market that Malta is experiencing

But another spokesperson from a different bank warned against over-procrastinating: “Given market prices, the reality is that those who apply for a property loan after the age of 35 are unlikely to be granted the amount they need, given that they will not be in a position to pay it off within a shorter span of time. In effect, this means that the pool of properties they would be able to afford would be considerably limited, unless they had access to another source of capital.”

This is a route that certainly worked well for Marco*, 29, who bought a two-bedroomed, furnished apartment in Naxxar for €170,000 a few months ago. Also a first-time buyer, he admits to being somewhat luckier than most, as his parents gifted him with €50,000 to start him off.

“I am still living with them and, to be honest, I am viewing this as an opportunity to invest rather than as a new home. I am starting the process to rent it out and, hopefully, will be able to recoup the bank loan in some years’ time. The plan is to sell and upgrade when most of the loan is paid off,” he says. However, he adds that he would not have managed this without his parents’ help, as his salary alone would not have been enough to cover the necessary bank loan.

READ: Maltese property prices are rising faster than Hong Kong's

What about the incentives and subsidies available to first-time buyers?

“They only help to a certain extent; they facilitate the lives of those who already have enough money to buy. Take stamp duty exemption – the highest amount you can benefit from is €5,000. A drop in the ocean compared to the overall investment you will be making and the ready capital you need to have available,” he concludes.

*names have been changed

‘While the going is good…’

With all statistics pointing towards Malta currently enjoying a reasonably strong economy, the difficulties in buying property for average-income people may be viewed as an economic anomaly.

However, economist Lino Briguglio says that the situation is not so surprising and that it can be attributed to the fact that the price of property has increased much faster than the average income.

One reason that has contributed to this situation, he says, is that the cost of land, labour and construction material has increased. “However, more importantly, the demand for property has increased also, mostly driven by an increase in demand from foreigners, especially those employed in well-paid jobs,” he says.         

The contradiction has not escaped stakeholders, with some sectors warning that inflated property prices are not realistic and that the situation is likely to implode in the short-term future.

READ: Villa and farmhouse prices soar by 50 per cent

Prof. Briguglio points out that the current demand is still sustaining the increase in property prices but this does not mean that this will subsist forever.

“If there is a reversal, which could happen, for example, with the inability of the Maltese government to give a tax rebate to foreign businesses investing in Malta, there could be an implosion. This will not only affect the property market but also the banking sector, given that a large proportion of bank loans in Malta are tied to property.

“While the going is good, all seems to be well. But the bubble could burst, and a reversal in demand for property or a ruling by the EU Commission about tax rebates for foreign companies could lead to a fast, economic downswing,” the economist warns.  

So is there a solution to minimise the problem?

Developers, Prof. Briguglio says, have a good feel for market trends.

“They know there is demand for their product and that they will get a good return for their new property, at least in the short term. So, it is up to the government to adopt policies that make it less attractive for entrepreneurs to invest in very risky business, even if such investment yields relatively high profit in the short term.”

There are various measures that the government could adopt in order to diversify the economy away from a high dependence on risky investment, he adds.

“We have seen similar booms in other EU countries, which led to a rapid economic slowdown, and even to recessions.”

But he warns away from the imposition of caps on housing prices or on rent, as such measures often prove to be counter-productive, saying that the focus should be on introducing schemes for first-time buyers.

“Schemes to support low-income earners in buying or renting a house which they can call their home are warranted on social grounds,” he points out.

Prices rising higher

House prices in Malta increased by 45.67 per cent over the last 10 years, according to the Global Property Guide. Figures are based on information gathered during the last quarter of 2017.

Official statistics reveal that during the first quarter of this year, the Property Price Index had already risen by 5.2 per cent when compared to Q1 2017.

According to the same statistics, the price of apartments is increasing at a higher rate than that for maisonettes.

In the third quarter of last year, house prices in Malta registered the second highest increase in the EU, according to Eurostat statistics.

Independent journalism costs money. Support Times of Malta for the price of a coffee.

Support Us