"Bank of Valletta's credit business spans the major economic sectors in Malta and loans to the real estate sector form a significant part of our portfolio," said Alfred Attard, executive head at BoV's corporate centre at a recent forum on the real estate market, organised by EMCS Group at the Malta Hilton.
The forum sought to discuss the importance of upgrading the investment value of real estate in Malta as well as to address the issue of supply and demand.
Referring to trends in mainland Europe, Mr Attard explained how over the past decade many European countries experienced a building boom coupled with a strong increase in property values.
"The main reasons for this were a strong economic growth, low inflation, falling nominal interest rates, expanding labour markets and limited housing supply in areas of greatest demand.
"However, there are indications that the continental housing boom is running out of steam and house price increases seem to be moderating. The general rises in interest rates led to a noticeable slowdown coupled with particularly high debt-to-income ratios in some European countries. Last year, countries such as Spain, Ireland, France and Belgium saw year-on-year falls in house price rises."
Speaking about the local property market, Mr Attard referred to the long-running building boom that saw an exceptional growth fuelled mainly by the prospect of lucrative underlying profit margins, the perception that property is a very strong source of investment, the surge in demand accommodated through more favourable mortgage terms, demographic changes resulting in an overall increase in household demand and the new upmarket concept of luxury living.
"In Malta, property prices have risen by 400 per cent in nominal terms over the last 15 years, mainly due to several years of strong GDP growth, Malta's accession to the EU, the introduction of the Investment Registration Scheme in 2005, allowing a tax amnesty to residents who repatriated their foreign investments, and due to credit availability fuelling both the supply and demand sides of the property sector.
However, annual house price increases have been slowing down consistently since 2005 due to over-development and concentration of residential real estate as opposed to commercial (office) space and also because the influx of international holiday home hunters after EU accession was lower than anticipated.
"A looming situation of oversupply is however evident, especially when one considers that permanently vacant dwellings have doubled to reach 50,000 over the past 10 years. The market can still potentially grow in a relatively marked way over the next five years. However, the lower end of the market is more likely to feel the price pressures," Mr Attard said.
"We acknowledge that the real estate sector remains an important contributor to the economy and we can overcome the challenges ahead by managing the oversupply situation, by identifying the target market of potential foreign buyers, by segmenting the market and developing the appropriate product accordingly."