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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2007 Report

Construction
After having increased by 5.9% in 2006, the gross value added of the construction industry, measured in nominal terms, rose by 2.7% in 2007 (see Table 3.4). According to ETC data, full-time employment in private construction increased by 2.3% during the first nine months of 2007, as against 7.1% in 2006. After having declined in 2006, the industry’s average annual gross salary as reported in the LFS rose by 2.3% in the first three quarters of the year, a faster rate than the 1.7% recorded across all other sectors.

At the same time, there was a 9.0% rise in the number of building permits issued during the year. Although still high, the rate of increase was sharply down from the double-digit growth rates of previous years. The preponderance of permits issued in 2007 was for flats, while approvals for other dwelling types declined from the level of the year before (see Table 3.5).

Residential Property Prices
The rate of increase in residential property prices decelerated further in 2007, to 1.1% (see Chart 3.5), reflecting a slowdown in asked prices for most property types, particularly flats. While prices for finished flats, the predominant category, rose by 1.8%, as against 2.5% a year earlier, those for flats in shell form went up by 1.4%, considerably slower than the 8.5% rise recorded in 2006.

Similarly, growth in asked prices for villas decelerated to 0.9%, from 10.6% in 2006. Prices for maisonettes in finished form and town houses contracted by 4.6% and 7.1%, respectively. On the other hand, prices of terraced houses and houses of character increased by 4.6% and 11.0%, respectively.

Financial Stability Analysis
In 2007 favourable domestic economic conditions continued to sustain the financial sector’s positive performance. The capital buffer of the banking sector as a whole increased, complemented by an improvement in asset quality, though profits remained at the same level as in the previous year. The same trends were reported by domestic banks, except for a small decline in profits. At the same time, the financial standing of households improved further, reflecting the rise in compensation levels nationally and the fall in the unemployment rate. The corporate sector registered higher gearing and liquidity ratios and stable profitability.
These developments also led to an improvement in the quality of bank asset portfolios. Nevertheless, the private sector continued to accumulate debt which, in the case of an economic downturn, could put some strain on repayment capability and, hence, on the banks’ profits and capital base. This would be more acute if – given the high concentration of the banks’ exposures to real estate – a sharp fall in property prices resulted in a rise in borrowers’ default rates.

The non-financial Sector

The household sector
Household credit demand continued to be a major stimulus for the growth in the banks’ lending portfolio, although banks reported a slowdown in demand towards the end of 2007, as indicated by the responses to the Bank Lending Survey (BLS).9 The expansion in credit demand was also reflected in household indebtedness to banks, which continued to increase throughout the year, reaching 58% of GDP, almost in line with the euro area average. Although the resilience of households to macroeconomic shocks improved, helped by the further accumulation of wealth, the increase in the debt-servicing ratio could result in more debt-repayment problems in the future. The proportion of household NPLs to total household loans remained stable at 2.3%. However, the continued

strong growth in household debt during recent years implies a build-up of risks. In fact, shocks to disposable income and wealth remain the major source of vulnerability for households. As indicated in Chart 6.3, household indebtedness continued to increase, while compensation to employees increased at a slower rate during 2007.

The Corporate Sector
A larger proportion of corporate financing needs was met through the capital market during the year. Nonetheless, borrowing from banks – which remained the main source of external funding for firms – continued to grow during the year, driven primarily by real estate related loans. Risks associated with such lending have grown as a result of cyclical and structural factors. These include both an increase in the mismatch between the supply and the demand for property, and the high concentration of bank exposures to this sector. Indeed, given that corporate bond issuance during the year was related largely to the construction industry, this disintermediation may have partly resulted from tighter standards adopted by credit institutions.