Property Prices in Malta

These documents contain excerpts about property prices in Malta, mdina and valletta obtained from the Central Bank Annual Reports issued between 1998 and 2009. Excerpts taken from the Central Bank Annual Reports: http://www.centralbankmalta.com/site/publications2.asp

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2004 Report

Developments in the property market exert an impact on household wealth and thus may influence aggregate demand, output and inflation. Given the importance of price indices related to this sector, the Central Bank of Malta upgraded the index it uses to measure price changes in residential property. The new index, which goes back to 1980, captures all advertised properties in Malta and Gozo except those for commercial purposes.

According to the new index, advertised property prices continued to accelerate in 2004, rising by an estimated 24.2% on average. Thus, the general upward trend in residential property prices, in evidence since 1989, persisted (see Chart 3.7). The increase in average prices was, to an extent, inflated by developments in u p-market units, as growth based on median prices was somewhat slower.9 Prices of all property types rose during 2004, with the sharpest growth registered in the asking prices of town houses and finished flats. These increases took place against a background of low interest rates and may have reflected a shift in preferences for investment in real estate as opposed to financial assets, on account of attractive mortgage financing opportunities.

2003 Report

Real estate prices, together with the prices of other assets held by households, affect private consumption through the wealth effect and may be indicators of future developments in output and demand. Furthermore, higher house prices often contribute to rapid growth in household debt, with implications for the stability of the financial sector. For these reasons, and also because developments in real estate prices are of interest per se, the Bank monitors house price movements on a quarterly basis through an index of asking prices, stratified by type and locality.

Chart 3.4 illustrates trends in the average asking price of dwellings (including finished terrace houses and flats and maisonettes in shell form) over the eleven years to 2003. This measure suggests that house prices doubled between 1993 and 1996, after which a short period of relative stability ensued. The upward trend resumed in 1999 although at a more moderate pace than in the early nineties. The rise in house prices in 2003 is estimated at around 10%, roughly the same as that recorded in 2002. Prices of all property types rose during the year under review, with flats and terraced houses showing the sharpest increases.

House price inflation in 2003, which was more rapid than consumer price inflation, may have been fuelled by the relative unattractiveness of financial assets,as interest rates continued to fall and the capital market remained weak. This, combined with the inflow of funds from abroad under the Investment Registration Scheme, may have induced investors to purchase real estate for investment purposes instead.

2002 Report

Real estate prices, as well as the prices of other assets held by households, affect private consumption through the wealth effect. They are also of interest per se, because they refer to a large and important market. The Central Bank monitors house price movements through an index of asking prices, stratified by type and locality. Chart 2.6 illustrates trends in the average asking price of dwellings (including finished terraced houses and flats and maisonettes in shell form) over the ten years to 2002.

As can be seen in the Chart, this measure indicates an acceleration of property price inflation in 2002, although this was not as pronounced as the one observed in the mid-nineties. There is some evidence to suggest that this development may have been due to the inflow of funds from abroad in connection with the Investment Registration Scheme5 combined with the weak performance of the capital market. In this case, property price inflation can be expected to moderate in the future.

2001 Report

Since movements in property prices may lead to an increase in underlying inflationary pressures, the Central Bank monitors trends through an index of asking prices for property, stratified by type and locality. This approach, however, has a number of shortcomings. Asking prices are usually higher than contracted prices, and properties placed on the market at different points in time may not be strictly comparable.

Chart 2.5 illustrates movements in average asking prices of real estate (including finished terraced houses and flats, and maisonettes in shell-form) as advertised in the local press over the last nine years. The Chart suggests that house prices doubled between 1993 and 1996. This was followed by a short period of relative stability, as the property boom came to an end. But the upward trend resumed in 1999, though the rise of these last years was more moderate than the double-digit growth of the early nineties. In fact, the rise in real estate prices during 2001, estimated at under 5%, was only slightly more rapid than that in the RPI. The increase was also slower than that recorded in 1999 and 2000, and was mainly concentrated in the central region.

In recent years the demand for residential property has shifted away from terraced houses towards flats and maisonettes. This probably reflects demographic and social trends which are giving rise to smaller family units. Since the supply of flats and maisonettes is much larger than that of terraced houses, this shift in preferences may be one of the factors behind the recent slowdown in property price inflation.