A bullish rally in the property market
Following the recent acceleration of the vaccine rollout in Malta and the reopening of the tourism sector, it would be interesting to gauge the extent of the economic recovery during the coming summer months and how this may impact the property rental and cost of property units if the COVID-19 pandemic slowly calms down.
This recovery needs to be measured in the light of the country’s debt metrics which so far remains in line with those of A-ranked countries and Fitch considers government debt structure to be “favourable”. Fitch agency is similarly bullish about the country’s banking and real estate sectors.
Maltese banks are well-positioned to absorb higher loan losses caused by the pandemic, it said, although their profitability faces pressure due to moratoria on loan repayments and low-interest rates.
Property prices are in line with fundamental factors and household debt is low, it added. Rental prices have declined by 11 per cent, as owners of Airbnb rentals have switched to offering long-term rentals, adding supply into that market. Be that as it may one appreciates the publication of a Djar Report in conjunction with EY.
This edition of the Djar Report includes an analysis of specific trends within Djar’s database within this context of property transactions. Besides the analyses of average changes in asking prices and rates per sqm (up to 2021Q1)2, this quarterly edition also presents an analysis of market supply, from both Djar’s database and public information. This report also includes an analysis of asking prices for various types of commercial property, with a more detailed focus on retail properties. The seminal report is detailed and is worth studying.
Starting in April 2021, when the NSO issued the first ‘Residential Property Transactions’ publication empowered the publication of this unique study listing and comparing national promise of sale (PoS) and final deed data as from 2018Q1. These two data points represent a measure of market activity levels, i.e. transactions that are the realisation of both demand and supply. It also indicates a strong resurgence in market activity following the slump in 2020Q2.
As reiterated in the Djar Report, it affirms how promises of sale levels have returned to pre-2019 figures. This observation could be reflecting ‘pent-up’ activity that had been stalled during the COVID restrictions.
It is also likely to be an outcome of demand-boosting policies over this period. Overall, the data analysis indicates a resurging market supply reflecting incoming supply from the development pipeline following rising development permits over 2015-2019, as well as the pent-up activity which had been stalled over the COVID-onset months.
Recorded increases in market activity (promises of sale and deeds) show that corresponding market demand is also present, on the back of market stimulating/incentivising measures. Fitch reported a rating of A+ positive outlook but the IMF report on Malta did not sugar its criticism saying that while new fiscal buffers were built yet economic growth has in the past relied on large inflows of foreign labour, which augmented the pressure on the island’s housing, infrastructure and natural resource management. As in previous reports, more structural reforms are recommended to encourage the elderly and women to participate in the working world.
Can the post-COVID new economy be a harbinger of a new wave of gentrification which will slowly push up domestic rental values? Party apologists wax lyrical that prior to the abrupt resignation of Joseph Muscat as prime minister, those were the “best times ever” pointing to restaurants and pubs brimming with diners (tourists and locals) while champagne flows at corporate parties.
In reality, pragmatists warn that during the “l-Aqwa Zmien” the disparity between the fat cats (sporting Ferrari’s, skiing holidays or sipping aged single malts on expensive yachts) and the working classes was then getting wider. Ideally, this imbalance is reduced and attempts made to reach a wider distribution of wealth. It is not a dichotomy, just read how IMF praises Muscat’s premiership for its success in planning a flourishing economy during the “l-Aqwa Zmien” with full employment. This had registered an extraordinary growth prior to the onset of the pandemic.
The IMF is also chasing us to address our weaknesses but really and truly compared to other ailing EU countries – we have achieved a lot in a short time since Independence. As they say, Rome was not built in a day and it is well documented that the elusive trickle-down mechanism had faltered due to the heavy expense of furlough schemes.
The anomaly is that while Malta Enterprise recalls saving 100,000 furlough jobs yet most hospitality units are short of staff. Certainly, the maths does not add up. Another chronic malady is the need to combat inflation in the cost of living particularly social rents. As always, pensioners come in with a load of demands. There is a general feeling that the statutory two-thirds capped pension mechanism unless supplemented by external income is not sufficient to help people from sliding into the poverty trap.
To analyse this issue, PKF designed a number of ‘one to one’ questionnaires and ran a confidential survey among residents in old people’s homes housed in three government-run centres. Not surprisingly, when one breaks up this data by age group or household type, one finds that the above mentioned ‘feel good factor’ has not benefited everyone at the same rate. A foregone conclusion which is prevalent is that people are living longer and by 2030, the number within the 65years-plus group will exceed that of young people aged 15 to 24. This inexorably shows how society is getting older and will inevitably face challenges in planning their retirement nest egg.
In conclusion, Fitch acknowledged that reform momentum had picked up the pace under Robert Abela’s administration (who promised continuity when he replaced Joseph Muscat) but noted that “unfolding corruption allegations in the context of the public inquiry into the murder of journalist Daphne Caruana Galizia could further lower Malta’s governance scores. One hopes that such reforms in good governance will lead to a positive assessment in the perception of FATF’s final assessment.