“Bank of Valletta’s credit business spans all the major economic sectors in Malta and loans to the real estate sector form a significant part of our portfolio confirming the Bank’s significant role in the economic growth on these islands.” This was stated by Alfred Attard, Executive Head at BOV’s Corporate Centre during his address at a recent forum about the Real Estate Market organised by EMCS Group at the Hilton on the 4th of June.

The forum sought to discuss the importance of upgrading the investment value of real estate in Malta as well as to address the issue of supply and demand based on the conclusions achieved in the first real estate forum of 2007.

Referring to trends in mainland Europe, Mr Attard explained how over the past decade many European countries experienced a building boom coupled with a strong increase in property values. “The main reasons for this were a strong economic growth, low inflation, falling nominal interest rates, expanding labour markets and limited housing supply in areas of greatest demand. However, there are indications that the continental housing boom is running out of steam and house price increases seem to be moderating caused by general rises in interest rates that led to a noticeable slow down coupled with particularly high debt-to-income ratios in some European countries. In 2007 in fact, countries such as Spain, Ireland, France and Belgium saw year-on-year falls in house price rises.”

Speaking about the local property market, Mr Attard referred to the long-running building boom that saw an exceptional growth fuelled mainly by the prospect of lucrative underlying profit margins, the perception that property is a very strong source of investment, the surge in demand accommodated through more favorable mortgage terms, demographic changes resulting in an overall increase in household demand and the new up market concept of luxury living.

“In Malta, property prices have risen by 400% in nominal terms over the last 15 years mainly due to several years of strong GDP growth, Malta’s accession to the EU, the introduction of the Investment Registration Scheme in 2005 allowing a tax amnesty to residents who repatriated their foreign investments and due to credit-availability fuelling both the supply and demand sides of the property sector. However, annual house price increases have been slowing down consistently since 2005 due to over-development and concentration of residential real estate as opposed to commercial (office) space and due to the fact that the influx of international holiday home hunters after EU accession was lower than anticipated.”

“A looming situation of oversupply is however evident especially when one considers the fact that permanently vacant dwellings has doubled to reach 50,000 over the past ten years. The market can still potentially grow in a relatively marked way over the next 5 years however the lower end of the market is more likely to feel the price pressures,” added Mr Attard.

“Whereas Bank of Valletta’s home loans portfolio is showing sustainable growth underpinned by modest default rates and strong LTV, we are nonetheless adopting a very prudent approach to lending for property development. However, we do acknowledge that the real estate sector remains an important contributor to our economy and we can overcome the challenges ahead by managing the oversupply situation, by identifying the target market of potential foreign buyers, by segmenting the market and developing the appropriate product accordingly and by determining a clear future direction for the real estate sector,” concluded Mr Attard.

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