The Covid-19 pandemic is affecting all sectors of the global economy. There is barely a nation on earth that has not suffered serious economic disruption due to the virus, and Malta is no exception. According to a new report from the real estate agents Property Hunters, the rice of property in Malta could fall by as much as 10% over the next year. This is due in large part to the decrease in revenue flowing from short lets and fewer conversions into long lets. Such a decrease in property prices would impact everyone, from domestic buyers looking for a new residence, to investors who are planning on incorporating a company in Malta.
Crashing Short Let Market
Thanks to the impact of Covid-19, a three-bedroom apartment in Sliema is expected to fall to €23,429 in the best-case scenario. Should the property market take a harsher beating, then the price will drop to €11,714. In the worst-case scenarios that economists have modelled so far, Covid-19 could see the value of a three-bedroom apartment in Sliema plummet to just €2,929. Without the effects of Covid-19 pushing prices down, the same property would cost around €31,238 right now.
In terms of percentages, the above figures represent a fall of between 7.2% and 17.2%, depending on how severe the economic impact is. In the most optimistic scenario, the crash in the short letting market will cause a 3% drop in Malta’s GDP by the end of 2020. Before Malta introduced its own quarantine measures to counteract Covid-19, the tourism sector was already severely affected by the Outbreak, showing a drop-in occupancy of between 35 and 67% by the end of March. This has no doubt being a significant contributing factor in the deterioration of the Maltese short-term let market.
Domestic Tourism
There had been hope in some quarters that domestic tourism might be able to provide a lifeline for the Maltese economy. However, those hopes have been dashed by the latest report. According to said report, there has been persistent speculation that the Maltese tourism sector would be propped up successfully by all of the tourists who were already in the country and were now stuck there due to the lockdown. It had been hoped that these tourists might just be able to spend enough to prop up the Maltese economy until the pandemic subsides.
But according to the report, this is wishful thinking. The reality is that even if all of the outgoing Maltese tourists were to be redirected internally, there would still be a 4.5 million shortfall in short let occupancy in 2020.
Is There Any Hope?
Not all of the news from the report is negative; there may be a few reasons to remain hopeful. For example, the report suggested that there was a possibility of the Maltese property market taking a severe but short-lived hit. In support of this theory, the report’s authors pointed to historical trends observed after previous pandemics. When similar scenarios have arisen in the past, price corrections have followed relatively quickly. For example, the 1957 Asian Flu Pandemic was expected to cause serious problems for property prices. However, in actual fact, property prices only took a modest hit and were able to rebound quickly.
The report also touched on the issue of whether Maltese property prices might have been artificially inflated prior to the outbreak of Covid-19. This would mean that the current drop in price was, in fact, a correction. In this scenario, recovery would come a lot quicker than it would in the event of a drop in price from a normal baseline.
An Unprecedented Situation
Of course, the most important caveat to note in this whole situation is that the current situation is completely unprecedented. The world has had phased pandemics in the past, but the last compatible pandemic was the Spanish flu that ravaged the Globe a century ago. That flu struck while the first world war was still underway and caused major economic disruption.
But this time, things are different. We have essentially had to put the world’s economy on hold until we can safely restart it gain. Some economists think that because we have more or less put the economy on ice, it will be much easier to restart it than on it has been in the aftermath of previous financial crises.
If the global economy is able to start up again without any issues, then it seems likely that markets such as the Maltese property market will have a relatively speedy recovery. A healthy global economy means there will be plenty of outside investment in Malta. But Malta is heavily dependent on its property and tourism markets. For as long as large parts of the world remain in lockdown, and international travel is infrequent, Malta is going to be losing a significant amount of revenue.
While there are certainly lots of good reasons for concern when it comes to the impacts of Covid-19 on property prices in Malta, there are also reasons to be optimistic. While the potential for damage to the Maltese economy more broadly is still a very pressing concern, property prices should recover fairly quickly in all but the most nightmarish of scenarios. The current situation is entirely unprecedented, and while the report’s authors have gone to great lengths to justify their conclusions, they also emphasize the role that uncertainty plays in their forecasting.
There are also those who disagree with the report’s conclusions. For example, Kevin Buttigieg, who is the CEO of RE/MAX, believes that the Maltese people will continue to invest in property as they always have done. He points to the role that property has in Maltese culture, referring to it as being the “biggest investment” for most Maltese people.
Everyone agrees that the Maltese property market is going to take some kind of hit thanks to Covid-19. However, whether the anticipated 10% drop turns out to be an accurate prediction or a doomsday scenario that never comes to pass remains to be seen.
