In 2008, the Maltese property market was booming, as was most of Europe. Then, the financial crisis hit and most countries fell into turmoil. Four years later, most countries are still feeling the effects with Europe and the Euro under threat and many banks having suffered major financial blows.
Was Malta therefore immune to everything that went on in the rest of Europe? It may sound hard to believe, but Malta withstood the ‘crisis’ very well and I think there were a number of factors behind this.
One of the principal reasons was the prudent banking system. Banks have always been very sensible when lending money in Malta. If providing a home loan for example, monthly payments cannot exceed a quarter of one’s monthly income. This means that borrowers are reasonably comfortable with their loan repayments, and we very rarely notice defaulted loans. When financing a development, banks provide end finance and require developers to forward the initial financing, using the bank loan to finish off the project, thus ensuring that developments are completed. Also, employment levels in Malta were maintained at a very healthy level, so the overall banking system was not suddenly hit as it was elsewhere in Europe.
Secondly, Malta’s size allows a great degree of market flexibility. In a reasonably short period of time, the players in the property market were able to assess what was happening and quickly adapt to the new market conditions.
The initial impact in 2008 was that buyers wanted to ‘wait and see’ what was going to happen. They soon began to realize however that Malta was not impacted as negatively as the rest of Europe and therefore within a year or so, property sales started to pick up again. The foreign market was affected and the number of foreign buyers dropped. However, the bulk of property sales in Malta has always been to local buyers, with sales to foreigners accounting for under 10% of total sales. Therefore, whilst sales to foreigners are important and offer an important boost to the local property market, a drop in sales to foreigners did not have a catastrophic impact as it did in other countries that virtually depended on foreign sales. Parts of Spain and France, for example, were impacted in a big way and the property market crashed as a consequence.
Slowly but surely, the market has picked up. Whilst property prices did not keep rising as they had done prior to 2008, the volume of property sales has returned to a very healthy level. In fact, last year this was at a very similar level to 2008 and property values even experienced increases, albeit marginal ones. Foreign demand has also recovered and we are expecting this to increase further.
The rental market has boomed over the last four or five years since Malta’s incentive schemes for foreign companies to base themselves in Malta have proven to be extremely successful and the number of expats working in Malta and therefore renting accommodation has grown exponentially.
As long as we remain sensible in the way we manage our local property market, this should always be a safe and secure investment for years to come.