It is said that an Englishman’s home is his castle. For a Maltese person, his home is his store of wealth. Our houses may be getting smaller, but with an average floor area of an affordable three bedroom apartment of 105 square metres they are certainly much bigger than many similar accommodations in any European city.
One is therefore justified in claiming that in Malta property prices on average double every 10 years- John Cassar White
The subject of the present state of the property market is never far from grabbing the headlines in the business news sections of our media. News on the property market interests not only those businesses associated with the construction, and property dealing sectors, but also ordinary people who own a property either as their home or as an investment. I have seen some very interesting but unpublished studies about the property market in Malta that dispel some myths and reveal some useful facts about the prospects of investing in property. I will comment on a few of these facts.
In the early 1950s only about 25 per cent of Maltese households owned the property they lived in. In 2005 this figure exceeded 75 per cent which compares very favourably with richer countries like Sweden and Germany where home ownership is a mere 45 per cent, with France and the Netherlands having a homeownership rate of 54 per cent. Ironically Spain –the present “sick man of Europe” – has a higher homeownership rate of 82 per cent. So there is no doubt that the mortgage market in Malta has satisfied the Maltese’s households’ desire to invest most of their wealth in property.
An even more emotive issue is whether the property market in Malta gives superior returns to money kept in savings of deposit accounts with banks or even invested in bonds and shares. The studies I have seen show some very revealing information. In the last 30 years property in Malta showed an average annual appreciation of 7.5 per cent. Affordable property in the south of the island showed a significantly higher appreciation of 8.5 per cent in this period, while property in the Sliema area appreciated by an average of seven per cent. Affordable property is defined as property that has a price to earnings ratio of between three and six, so that it excludes the higher luxury end of the market.
One is therefore justified in claiming that in Malta property prices on average double every 10 years. But averages hide some stark realities. Keen professional observers of the property market in Malta contend that Malta experienced a property bubble between 2003 and 2006 when house prices growth in Malta averaged 20 per cent per annum. In 2008 with the advent of the global recession, house prices in Malta registered a decrease for the first time in the previous three decades. The downward trend started in 2008 persisted until the end of last year. This explains the distress signals coming from those involved in the property market over the past several months.
Rather than delve deeper in these figures which are by no means official but certainly reliable as they have been compiled by professional market watchers, I will comment on some of the implications of the price dynamics that seem to be dominating the property market. One immediate conclusion is that the often repeated mantra that what matters in the real value of property as an investment is “location, location, location” is indeed a valid maxim.
Property in the south of Malta with an average price of €900 per square metre in 2011 is much cheaper than property in Sliema where the average price per square metre is a hefty €1,400 per square metre. The same principle seems to apply for the free rental market of property. On average a three-bedroom apartment in Bugibba currently rents out at 3.5 per cent of its market value. While a similar apartment in St Julians gives a gross return of over five per cent.
Those who invest in property as their nest egg of retirement need to be aware of other issues. Investing in one’s home is not really an investment that can render liquid returns unless one is prepared to downsize on retirement and put one’s home on the market. Many find this prospect too much of an emotional trauma and are not prepared to make such a drastic move.
So while the long term prospects of capital appreciation as well as possible annual income generated through renting one’s property are encouraging, the lack of liquidity in the market makes proper planning and timing a critical investment success factor. Ultimately no one wants to see one’s nest egg smashed unnecessarily.
johncassarwhite@yahoo.com