There is no doubt that Malta’s real estate prices have increased substantially in the past few years, but is there a danger of a bubble forming and if it does, when will it burst?
In order to put things into context, Malta’s Housing Price Index showed that the price of houses grew by 10.8 percent between March of 2018 and 2019. The average rate of growth since records began being kept in 2001 was of 5.8 percent, showing that price growth was almost double the average.
Does this mean that Malta is experiencing a real estate bubble? To answer that question, we must first understand what a real estate bubble is. The most common definition of a real estate bubble is an increase in real estate prices which is driven up by demand, speculation and confidence in the market.
Further upward pressure is put on prices when speculators come into play, which in turn drives demand up even further. When supply increases and demand stagnates, a sharp drop in prices follows and the bubble bursts.
Malta’s economic growth rate is booming at 6.6 percent of Gross Domestic Product and this is fuelling a construction boom. Demand for real estate in Malta is also high due to the fact that a lot of people are moving to the country for work or to take up residency here.
Prices are being pushed up by a squeeze in supply, and even though many units are being built, it is currently not enough to keep up with demand, pushing prices up. Malta’s historically low interest rates are another factor that goes into the mix.
Looking at things from an objective point of view, it is clear that there are several elements which are playing a part in helping towards the creation of a real estate bubble.
But for that to happen, it would require an exodus of foreign workers who have taken up residence in Malta. As things stand, Malta’s economic growth looks set to grow for at least the next 5 to 10 years, so there seems to be no danger of jobs drying up.
If Malta’s economy were to slow down and plateau, this would also not be enough for a bubble to burst, if it were to form. In technical terms, if expats were to leave Malta, the massive investment in creation of new units would result in an oversupply of stock, meaning that the market would need to readjust.
If a hypothetical bubble were to form in Malta, it would not have the same drastic effects as in other countries, mostly because the Maltese are somewhat less likely to invest in buying a second property, in cash. If there is a price readjustment they won’t be forced to sell.
One problem that does affect the market is lack of data. The first step to rectifying this problem was the creation of the Malta Property Price Index, but many speculators still go on hearsay, jacking up prices by 20 percent or more, just because they have heard that other people have done the same.
So is Malta in a real estate bubble? The answer is not clear cut. As can be seen from the above, some of the factors which could create a real estate bubble are already here, but it does not look like anything will come crashing down any time soon.