1.2% increase in interest rates would price median income households out of market – report

An increase in interest rates of just 1.2 per cent would have a significant impact on property affordability, putting average-priced homes out of reach for households earning a median salary.

The finding emerges from the latest release of The Malta Property Market – A True Picture, an analytical report produced by advisory firm Grant Thornton using real estate agency Dhalia’s extensive property database and market development data.

This release is an update on the previous reports and includes new insights.

Grant Thornton consultant Daniel Gravino presented the report during an event held on Thursday 20th April at Trident Park in Mrieħel.

He explained that a significant indication that emerged from the data is that “a two-adult household based on two income earners on minimum wage, afford a maximum house price of around €145,000 which falls significantly below the average market price for a finished housing unit of €260,000”.

This raises concerns on affordability and striking a better balance between affordability and environmental sustainability can lead to more affordable and equitable housing options.

Furthermore, affordability might worsen if the inflationary pressure caused by the after-effects of the COVID-19 pandemic and the Ukraine war in international markets persist in the future.

This has already led the European Central Bank (ECB) to raise interest rates by 350 basis points to over 3 per cent – after years of low or negative rates.

“A leading bank operating in Malta has already increased the interest rate on home loans by 40 basis points, implying that the maximum home price for a two-adult household on median income would decrease by around €17,000,” reads the report.

“If banks were to increase the interest rate on lending by 120 basis points, even a two-adult household with median income would be unable to afford the average-priced property. While other banks have not increased interest rates, persistent inflationary pressures caused by global developments may lead to higher borrowing rates.”

Amongst other insights presented by Dr Gravino, it was reported that during Q1 of 2023, although the housing price index remained at 9.8 per cent higher than the average price that prevailed in 2019, it experienced a decline of 2.9 per cent when both the Maltese property market and economy registered growth at a very fast pace.

During the same period under review, rental prices remained relatively unchanged from 2022, suggesting that the recovery to pre-COVID-19 rental prices has been sustained.

Furthermore, during Q1 of this year the number of final deeds when compared to the same period of the previous year was 9.4 per cent less. On the other hand, the number of registered POS agreements increased by 14 per cent.

This trend is indicative of an expected increase in housing stock over the next 2 to 3 years, as units typically come onto the market with a time lag.

Based on forecasts for the Maltese economy, it is estimated that the additional supply of housing units will exceed further demand for 2024 and 2025, thereby possibly applying a downward pressure on prices.

Commenting about the event, Alan Grima, CEO of Dhalia, stated that by delivering comprehensive insights into Malta’s property landscape, the company is committed to empower stakeholders to navigate the evolving market confidently. “With dedication, collaboration, and transparency, our aim is to contribute to sustainable growth, fostering equitable communities and a thriving property industry for the future of Malta.”