From property to the stock market

In Malta and in most parts of the world, property ownership has always been regarded as the best way to generate wealth over time. Real estate was always seen as a safe investment that appreciates strongly over time.

The increase in property values in Malta has been nothing short of exceptional especially in the past 20 years and was definitely far superior to that experienced in many other countries.

However, an article published by The Economist last week argues that the long-held conviction of generating wealth mainly via real estate is now being challenged. A greater proportion of household wealth is now increasingly being generated on the stock market rather than through property.

This development could be linked to two main factors. In view of the strong increase in property prices over the years, home ownership in several countries is now beyond the reach of many young adults. At the same time, the expected returns from property are diminishing. In the UK, for example, the average home is reportedly now worth less in real terms than it was twenty years ago. Meanwhile, equity markets have produced stellar returns over the years, especially in the US.

As a result, young adults in many countries are now opting to rent rather than buying property, while channeling their savings into capital markets as they may no longer believe that property ownership alone guarantees long-term financial security.

Malta’s wealth mainly in real estate

The composition of household wealth locally remains heavily tilted towards real estate with very limited exposure to capital markets and a large amount of idle cash in the banking system. According to the Household Finance and Consumption Survey (HFCS), ‘real assets’ accounted for 89.5 per cent of the total assets of Maltese households, compared to an average of 79.9 per cent across the euro area. Real estate alone represents over 90 per cent of these real assets, with the household’s main residence making up almost 70 per cent and other properties representing the balance.

As a result, financial assets accounted for only 10.5 per cent of total household assets in Malta, roughly half the euro area average of just above 20 per cent. Moreover, bank deposits make up the majority of the financial assets category.

These deposits placed in current and savings accounts across the main Maltese banks earn very little interest for depositors despite the recent increase in interest rates by the European Central Bank. The latest data shows that total deposits of Maltese residents across the banking system have continued to climb to €30 billion.

Malta’s circumstances differ from those in the UK, the US and in other countries. Local property prices have continued to rise and the cultural attachment to real estate ownership is very much ingrained in people’s mindset. This is not only related to one’s primary residence, but it has been extended to several investment properties for many individuals as a result of the strong rental demand over recent years.

Property ownership is indeed a very important component of long-term financial stability. However, the concern is the overwhelming concentration of household wealth in property and idle cash, with negligible exposure to other productive financial assets. This concentration carries risks that may not be fully appreciated given that most Maltese currently in employment have never experienced a property downturn as seen in other countries.

Good savers but poor investors

Like most Europeans, the majority of Maltese have proved to be diligent savers but reluctant investors over the years. The European Commission estimates that around €10 trillion, which is circa 70 per cent of EU household financial savings, is held in bank deposits.

Although bank deposits can be considered to be very safe and easy to access, they generate minimal returns that fail to keep pace with inflation. In a recent study by Revolut called ‘The European Wealth Drain Index’, it was estimated that Europeans lose on average €294 in purchasing power annually for every €10,000 they keep in the bank and forgo around €638 annually when compared to the 10-year annualised return of 9.06 per cent of a European equity index tracker. The opportunity cost of keeping excess cash lying idle is very substantial over a long number of years.

Making savings work harder

The issue extends beyond the returns earned by individual savers. According to a report on European competitiveness by Mario Draghi, Europe requires an estimated €750 to €800 billion of additional investment every year by 2030 to finance competitiveness, digitalisation, defence and the green transition. The banking system cannot fund this alone.

In view of this important observation, the European Commission launched the Savings and Investments Union (SIU) strategy in March 2025, with the aim of channelling a larger portion of household savings into capital markets to fund these investments and for savers to generate higher levels of income.

Greece has been among the most proactive member states following the recommendation by the European Commission. A few weeks ago, the Greek government launched the “1+1” programme which enables families to open a dedicated investment account within the first two years of a child’s birth. Families can contribute up to €10,000 annually into this account and the government will match every euro deposited (up to an initial €1,200 per year). This ceiling rises by 10 per cent every five years. The money must then be invested in various approved financial products including funds, shares, corporate bonds and government bonds traded on recognised markets in Greece or the EU. Interest, dividends and capital gains will be exempt from tax, and the account remains locked until the child turns 18.

When launching this scheme, the Greek government articulated an example of a child born in 2026 whose parents contribute €1,200 annually as from 2027 which is matched by the government every year. By the time the child reaches adulthood, the total capital deposited into the account would reach €49,304. The parent would have contributed €24,652, with another €24,652 coming from the government. At an average annual return of 3 per cent, the investment account would rise to just over €64,000 by 2044. Meanwhile, assuming an average annual return of 5 per cent, the investment account would grow to just over €77,000 at adulthood, with the family contributions amounting to circa €24,600 over the years.

Will Malta follow?

Although The Economist‘s article describes a generational shift that is already under way in many countries overseas, the increased focus on capital market instruments instead of property will undoubtedly be much slower in Malta. Nonetheless, there is an increasing need to continue to remind and also encourage Maltese depositors to redeploy part of the excess cash sitting idle in the banks towards more productive capital market instruments for their own financial benefit and also that of the entire economy.

This is the main objective of the SIU which was summarised by the Malta Financial Services Authority in a circular published in March 2025. The European Commission encourages member states to establish investment savings accounts offering preferential tax rates and simplified tax which are regarded as a key driver of long-term retail savings and investments.

Despite the recommendations by the European Commission and the developments in other countries, Finance Minister Clyde Caruana has unfortunately effectively ruled out any near-term incentives or plans to launch a savings and investments account. At an event held last week ahead of the Budget, the Finance Minister claimed that the government’s main aim is currently to ensure that the budget deficit stays below the 3 per cent level as the focus is mainly centred around the continuation of the very costly fuel subsidies.

It would be interesting to see the outcome of the mid-term review of the SIU which is due in the second quarter of 2027 and how Malta will fare among other member states given the inaction to date.

The article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article.