Promise of sale agreements drop by over a fifth in 2022

2022 saw promise of sale agreements on property drop by 22.1 per cent, according to KPMG’s economic outlook report for 2023. They addressed the issue with concern, adding that this represented a year-on-year decrease and trend which started in July 2021.

KPMG anticipates five key factors which may impact the increase in property supply in 2023 and thus affect property market prices.

Population change

The first factor is a change in the population residing in Malta. The firm notes that growth in the number of people coming to reside in Malta has moderated in recent years, and that the Government has indicated that it will no longer pursue aggressive policies to attract workers.

The manner in which this will impact property prices is that it will slow down demand. Workers coming to Malta for work tend to rent first, and if they decide to relocate permanently, opt to buy property, competing with other local residents.

Recovery in tourism

The second factor is the tourism industry’s recovery. The firm notes that 25 per cent of inbound tourists reside in non-collective accommodations (Airbnb-style accommodation). Further recovery is expected to impact the market for holiday leases, therefore making purchasing holiday property to rent out to tourists more attractive, bumping up property prices.

Hotel bed stock

The third factor is movements in hotel bed stock and conflicts with the second factor. The firm cited a study commissioned by the Malta Hotels and Restaurants Association (MHRA) and carried out by audit firm Deloitte in 2022, which indicated that Malta needed 4.7 million tourists to meet the anticipated supply of hotel bed stock. This is well above the record figure of 2.8 million tourists hosted in 2019.

This is expected to make rates more competitive in the accommodation sector, driving down prices, and as a result, yields, discouraging investors from purchasing property for holiday leases.

Regulatory policies & interest rates

The fourth and fifth factor are related to regulation and interest rates affecting prices. The Central Bank of Malta’s Directive 16 was issued to rein in vulnerabilities in the property market, by limiting access to finance for people looking to buy a second property. The firm notes that was introduced at a time when there were concerns that the market was at risk of overheating.

Thus far there have been no signs indicating a removal of the directive. Were it the case, it would facilitate lending for the acquisition of a second property by small investors, increasing buyer demand.

However the benefit of unlocking further demand could be negated if local banks start increasing their interest rates. Despite a recurring increase in interest rates by the European Central Bank to combat inflation, Malta’s local banks have stayed firm, for now.

Any increase in the interest rate for lending by local banks would inevitably result in a decrease in demand in property since it would decrease the amount buyers could borrow to finance their purchase by making it more expensive to do so.

Malta Developers Association reaction

Malta’s property market and affiliated economic sectors are of significant importance to the country, so it is no surprise that a potential slowdown could trigger anxiety for the industry’s leaders. However, the president of the Malta Developer’s Association does not seem concerned. In an interview with the Malta Independent, Michael Stivala said that drop in promise of sale agreements was normal. He explained that December 2021 was the final month in which schemes initiated to support the property market during the COVID-19 pandemic (i.e. the reduced stamp tax and other stamp duty-related schemes) were active.

In total there were 11,086 promise of sale agreements registered for 2022. A promise of sale agreement (konvenju) is a binding agreement that defines the date on which the seller promises to sell their property to the buyer. This protects both parties of the agreement, as the seller can’t sell the property to anyone else after the agreement is signed, and the buyer can not back out of buying the property easily.