Property price inflation drops to 3%
The Central Bank's residential property price index has recorded a sharp deceleration in price inflation, from a peak of almost 20 per cent in 2004 to three per cent in the first quarter of this year, Central Bank Governor Michael C. Bonello has said...
The Central Bank's residential property price index has recorded a sharp deceleration in price inflation, from a peak of almost 20 per cent in 2004 to three per cent in the first quarter of this year, Central Bank Governor Michael C. Bonello has said in an interview.
He said a major contributing factor was the marked increase in the supply of residential units, both large up-market developments and smaller apartment complexes.
"Given this situation of over supply, we expect property price inflation to remain low in 2007."
Mr Bonello added however that one could not overlook the fact that in a country where land is scarce and substitute locations do not represent a competitive alternative, property remained a popular component of investment portfolios because of the widespread anticipation of large capital gains. Developers, therefore, were willing, and seemed able to hold on to vacant property in the expectation of a rebound in prices. This prevented prices from finding their true level.
In the interview Mr Bonello also reiterates his call for structural reforms to bring about productivity growth.
"Although it is true that the economy has entered a recovery phase, it is also a fact that Malta has not benefited to the same extent as other countries at a similar level of development from the favourable global conditions of the past three years. This suggests that structural factors prevented the economy from responding effectively to the cyclical upswing."
He also explains the reasons why the Central Bank raised its central intervention rate twice last year and again in January, despite economic growth.
Interview: http://business.timesofmalta.com/article.php?id=5075
He said a major contributing factor was the marked increase in the supply of residential units, both large up-market developments and smaller apartment complexes.
"Given this situation of over supply, we expect property price inflation to remain low in 2007."
Mr Bonello added however that one could not overlook the fact that in a country where land is scarce and substitute locations do not represent a competitive alternative, property remained a popular component of investment portfolios because of the widespread anticipation of large capital gains. Developers, therefore, were willing, and seemed able to hold on to vacant property in the expectation of a rebound in prices. This prevented prices from finding their true level.
In the interview Mr Bonello also reiterates his call for structural reforms to bring about productivity growth.
"Although it is true that the economy has entered a recovery phase, it is also a fact that Malta has not benefited to the same extent as other countries at a similar level of development from the favourable global conditions of the past three years. This suggests that structural factors prevented the economy from responding effectively to the cyclical upswing."
He also explains the reasons why the Central Bank raised its central intervention rate twice last year and again in January, despite economic growth.
Interview: http://business.timesofmalta.com/article.php?id=5075