High property prices driving buyers to buy what they can afford – not what they want

Affordability appears to be placing greater limits on what buyers can purchase and how quickly transactions can be concluded, according to the Central Bank’s latest Business Dialogue, covering the second quarter of 2026.

The study includes an examination of the construction and real estate sector based on 141 responses collected from businesses since 2022, and its findings paint a nuanced picture.

Real estate businesses continue to report strong demand, with some recording record sales, while supply constraints continue to support property prices and rents. However, buyers are becoming more cautious, transaction growth has slowed and construction firms increasingly believe their segment of the market has reached a plateau.

The Central Bank said residential sales and rentals had continued to perform particularly well over recent years, supported by resilient demand, while constrained supply contributed to sustained increases in prices and rents.

At the same time, respondents reported a shift towards what the bank described as a “more buyer-driven environment”, with negotiations taking longer as prospective purchasers became less willing to make quick decisions.

“Growth in transaction activity also slowed due to higher property prices and mismatches between sellers’ price expectations and buyers’ budgets,” the report said.

It added that buyers’ choices were “increasingly shaped by their income rather than by location preferences or property types”, although overall interest in property remained strong.

This suggests that the cooling identified in the study is not, at least for now, characterised by falling demand or declining prices. Rather, affordability appears to be placing greater limits on what buyers can purchase and how quickly transactions can be concluded.

In effect, sellers may still benefit from a market where property is highly sought after, but buyers appear to have become more selective as the gap between asking prices and household budgets widens.

Apart from that, a Housing Authority study examining the experiences and outcomes of first-time buyers in Malta found that four in 10 first-time buyers in Malta received financial assistance from family members to help them purchase their first home, highlighting the growing importance of intergenerational support in accessing the property market.

The study also suggests that for some first-time buyers, the first property may not necessarily be a permanent home. Around 37 per cent of respondents believed they would need to move to a different property within the next ten years, while 35 per cent disagreed.

Prices and rents remain under upward pressure

Despite the more cautious purchasing environment, the study does not point to a broad reversal in property prices.

Real estate firms reported that demand had increasingly outpaced available supply across both rental and sales markets. Construction activity, although stable, had not been sufficient to alleviate this imbalance.

Demand was also described as broad-based across Malta, although central areas remained the most sought after.

The resulting imbalance has contributed to “significant increases in property prices and rents”, with some businesses going as far as saying that prices in certain locations had risen “beyond what is justified by the quality of the property”.

The picture is notably different on the construction side. “The construction sector is increasingly showing signs that the sector reached a plateau,” the Central Bank said.

Although conditions remain generally stable, businesses reported a “widespread view that the market may have reached its peak, with limited opportunities for further expansion”.

A major constraint is land. The limited availability of development sites has pushed land prices higher, while some firms said their order books were increasingly dependent on existing long-term projects rather than new developments.

Every property and construction firm surveyed reported higher costs

Cost pressures remain another important factor for the sector.

In the second quarter of 2026, every construction and real estate business surveyed reported an increase in non-labour input costs, compared with 63 per cent in the first quarter.

The bank said firms highlighted higher prices for imported raw materials, including cement, alongside increased transportation costs linked in some cases to tensions in the Middle East.

Across the economy, the net share of firms reporting higher input costs jumped from 68 per cent to 86 per cent during the quarter. Selling prices were also rising, although less rapidly: the overall net balance reporting higher selling prices increased from 47 per cent to 51 per cent.

Within construction and real estate, 78 per cent of businesses contacted said they had increased selling prices during the second quarter, down from 88 per cent in the first. However, the Bank noted that several firms said their price increases were insufficient to fully compensate for rising costs.