Property prices: what’s really driving changes in the market?

Helena Grech - 29th July 2019

From issues with quality in today’s construction industry practices to how much rent tenants can realistically afford, there are a number of factors having big impacts on the property and rental market today.

Despite property prices decreasing between the end of 2018 and the first quarter of 2019, when comparing with the same period last year, there was actually a 6.5% increase in prices, according to statistics released by the National Statistics Office (NSO).

As people continue to discuss a stabilisation in property prices, and in some cases, the rental market too, MaltaChamber has reached out to various real estate agents to get an informed snapshot of what is really happening on the ground.

Benjamin Grech, Managing Director for Engel & Völkers Sara Grech, contends that perception is the biggest issue that grapples the property market, especially from persons who are not so savvy.

“Those who have less faith or have been struck with a bad investment choice start to perceive the market differently to what it actually is. The main issue today is that people are not happy with the standard of construction. People are not happy with the fact that buyers are getting less and paying well in the current trends in construction practices.”

Benjamin Grech

Benjamin Grech, Managing Director at Engel & Völkers Sara Grech

He described a situation where a client purchased a brand new flat in Marsascala. During the excavation process, no thought was given as to where rainwater would be diverted to, there was no reservoir built and no care was taken to see that water would be pumped out into the public drains system. The buyer realised this after deciding he wanted to purchase the property. He went into the purchase knowing this drawback which he felt was unfair on all the block owners to have to put up with such matters.

“Water collection in buildings is an enormously important factor that we do not look after properly”.

As a result of shoddy workmanship, Mr Grech’s client is the owner of a brand-new apartment and garage, where the latter is constantly flooding, and the air is always damp. With regards the apartment, due to the quality of plastering work, insulation is particularly poor and the flat becomes a sauna in summer.

“The point in all this is that in the past this same unit was purchased at € 150,000 for a three-bedroom apartment in Marsascala, and today that same unit can be sold for € 350,000. This is not only more money in the span of just four to five years, but also in return there is no improvement in the build. The build quality has gone down and there is no value being added.”

Mr Grech went on to highlight a report which confirms the Planning Authority (PA) approved 52,448 properties between 2014 and 2018, with over 25,000 of those not yet completed.

“The island currently has a massive supply of apartments on the market, and people are speculating less when purchasing properties. The buying and selling on-plan and new build properties at the ‘promise of sale’ stage (kunvenju) has slowed down somewhat...Quality is the main reason why the market is stumbling, coupled with construction accidents, new regulations, felling of trees and cranes on nearly every corner. There is confusion. This could be the beginning of the start of some turmoil in the market.”

Mr Grech concludes by questioning whether the market is going to crash. “I do not believe so.” He said and continues to say: “the demand is there, but dramatic changes have to be made so that the island’s property market does not suffer severely.

steve mercieca

Steve Mercieca, Co-founder and CEO at Quicklets and Zanzi Homes 

In terms of the rental market, Co-founder and CEO of Quicklets and Zanzi Homes, Steve Mercieca observes that the rental market has already begun to stabilise.

“The rents stopped going up, room rental has become more and more popular. I don't think supply or demand are the only factors we need to look at. I believe that the main factor is the income of the tenants we are renting too,” Mr Mercieca explains.

He goes on to stress that tenants simply can’t afford to pay more rent.

“We went from the luxury of renting a 2-bedroom apartment in Sliema for €600 to renting a room in Sliema for €600 in a period of five years. The lack of supply and increase in demand threw the market into that position.”

Mr Mercieca contends that demand rocketed for rental properties for a few reasons, namely social media spreading the word about Malta as a hidden Mediterranean gem, the nice weather, language used, accessibility and health care services.

This together with many international companies setting up their bases in Malta has all “come at the right time,” he went on to say.

“Malta's property market was underrated, today it has reached its true worth. Nobody can really tell what’s going to happen in the next 10 years, but somehow, something inside tells me this is just the tip of the iceberg. Whilst I feel the prices will stabilize in the next two years, once Malta has the seven-star product to offer properties inside and around, these developments will continue to increase.”

Asked if he were a betting man, what his predictions would be about the future of Malta’s rental market, Mr Mercieca believes the property market locally will “always be stable”. He added that people are not going to walk up three flights of stairs while living in an older type of building when they can live in more modern properties for similar prices.

"Those new properties cannot rent for more than current market prices unless employers increase their wages,” he concluded.

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