Issue link: https://maltatoday.uberflip.com/i/1405706
en in June 2020, a temporary COV- ID-19 relief measure was introduced, providing for a reduced tax and duty rate of 5% and 1.5%, respectively, on the first €400,000 (US$483,308) of an immovable property transfer inter vivos. e measure will run until end-July 2021. Strong demand recovery During the year to Q1 2021, Cotton- era saw the biggest surge in the number of transactions of 78.4%, followed by the region consisting of Mdina, Ħad-Ding- li, Rabat, Mtarfa and Mġarr (64.5%); Ħal Qormi, Ħaż-Żebbuġand Siġġiewi (37.8%); Mellieħa and St Paul´s Bay (36.7%); Fgura, Paola, Santa Luċija, Ħal Tarxien (30.9%); Ħal Luqa, Gudja, Ħal Għaxaq, Ħal Kirkop, Mqabba, Qrendi, Ħal Safi, and Żur- rieq(18.7%); Mosta and Naxxar (18.6%). In contrast, residential property transac- tions continued to fall in Gozo, with an 8.1% y-o-y decline in Q1 2021; Pembroke, St Ju- lian´s, Tas-Sliema, Swieqi, and Ħal Għargħur (-7.3%); Ħaż-Żabbar, Xgħajra, Żejtun, Birżebbuġa, Marsaskala, and Marsaxlokk (-5.1%); Ħ´Attard, Ħal Balzan, Iklin, and Ħal Lija (-5.1%); and, Birkirkara, Gżira, Msida, Ta´ Xbiex, and San Ġwann (-4.4%). e region consisting of Valletta, Floria- na, Marsa, Ħamrun, Tal-Pietà, and Santa Venera saw no change in sales transac- tions. Residential construction In 2020, the grant of permits to develop new dwelling units fell by more than 37% y-o-y to just 7,837 units, according to the Central Bank of Malta, mainly due to pan- demic-related restrictions. • Apartment permits (86% of the total) plunged by 37.2% y-o-y to 6,735 units in 2020. • Maisonette permits fell by 40.7% y-o-y to 727 units. • Terraced houses permits dropped 25.6% y-o-y to 299 units. • For other houses, consisting of town- houses, houses of character and villas, per- mits fell by 42% y-o-y to just 76 units. Low mortgage rates e average interest rate on outstanding housing loans fell slightly to 2.95% in Feb- ruary 2021, from 3.02% the previous year, and 3.08% two years ago. By maturity: • Up to 1 year: 7.08%, up from 6.09% a year ago and 7.08% two years earlier • 1-5 years: 4.06%, from 3.96% in Febru- ary 2020 and 4.05% in February 2019 • Over 5 years: 2.94%, down from 3% a year earlier and 3.06% two years ago Housing loan interest rates in Malta fell sharply from late-2008, following ECB rate cuts. In March 2016 the ECB cut its base rate to 0% where it remained since. Mortgage market Malta's mortgage market grew strong- ly to 45.8% of GDP during 2020, up from 40.3% of GDP in 2019, thanks to low and stable interest rates. In February 2021, to- tal housing loans outstanding rose strong- ly by 7% y-o-y to €5.92 billion (US$7.15 billion). Housing loans grew by an average of 8.1% annually from 2010 to 2020, a slowdown from an annual average growth of almost 13% in 2006-09. e average loan-to-value ratio is now 76%, according to EMF's Hypostat 2020 report. Malta's mortgage market is dominated by Bank of Valletta plc and HSBC Bank Malta plc, which account for 71% of the domestic retail market. Rental yields Rental yields in Malta are moderate, at around 4.4% for apartments in favour- ite expatriate areas such as St Paul's Bay, Sliema, St. Julian's, and Swieqi, accord- ing to Global Property Guide research. St Paul's Bay is the most sought after rental property market in Malta in 2020, which is unsurprising given that St Paul's Bay is the country's most populous locality. Apart- ment prices in popular expat spots average from around €3,200 to €4,500 per sq. m. Free market rents Free market residential rents fell last year by double-digits, due to the decline in tourist arrivals and foreign expat workers amidst the pandemic. "e proportion of properties registering discounts in their advertised rents….rose dramatically between March and April 2020…from 53.7% to 86.2%, respectively," said the Central Bank of Malta in its 2021 Long-term Housing Rentals report. However overall, rents increased by 1% in Q1 2021 from a year earlier, due to the peculiar composition of Malta's rental market – only 10% of rental properties are rented at market prices, the rest being in the subsidized sector. Most Maltese opt to own property rath- er than rent, with owner-occupancy rates currently at about 80%, up from 68% in 1995, according to the European Mortgage Federation's Hypostat 2020 report. Before the pandemic, rents had been rising strongly in Malta, buoyed by the in- creasing number of foreign workers, who mostly live in rented accommodation. Tourism, which increased by 10% annually from 2013 to 2019, and the introduction of the MIIP in 2013, increased rental demand further. However during 2020 tourist ar- rivals plummeted by 76.1% to just 658,600 people, according to the Central Bank of Malta. UK nationals accounted for 20.6% of to- tal tourist arrivals in Malta last year, fol- lowed by Italy (14.3%), Germany (11%), and France (10.8%). Non-EU citizens rep- resented almost 32% of total arrivals. High vacancy rate Paradoxically, over the past decade Mal- ta's residential vacancy rate has remained high, despite continuously rising house prices. e vacancy rate now stands at 18% of total dwelling stock - one of the highest in the European Union. Many say this is due to Malta's rent control system. To protect tenants, private rental market rents are frozen and landlords are prohib- ited from evicting tenants, unless a suita- ble alternative accommodation is offered. To increase the rent the landlord needs the approval of the Rent Regulation Board, which is hardly ever granted. To address the issue, the Rent Reform Law came into force in January 1, 2010. e new law established an annual mini- mum rent and was intended to gradually stop the inheritance of rented properties, so that they revert to their owners. Moreover to address another source of vacant properties, the government recent- ly reduced from 10 years to 3 years the period after which an inherited property in dispute can be sold, provided that most (but not all) heirs agree on the sale price. To further encourage the use of vacant properties, the government reduced the stamp duty on transfers of properties with- in an urban conservation area from 5% to 2.5% in 2016. Also, transfers of restored properties within an urban conservation area will now have a lower final withhold- ing tax, reduced from 8% to 5%. In 2017, the government also lowered the stamp duty on properties acquired in Gozo from 5% to 2%. In 2018, the Housing Authority intro- duced the Skema Nikru Biex Nassistupro- gram, encouraging private owners of one, two, or three bedroomed properties at least 30 years old which have been vacant for a year or more to enter into a lease agreement with the Authority for ten years. e vacant property owner will receive a maximum grant of €25,000 to refurbish the property. e Housing Authority will then rent the property from the owner in a fully finished state, with the rental based on a set of criteria. During the 10 year pe- riod, the owner will receive constant rental payment, with a 2% increase annually. DATA: NSO, CENTRAL BANK OF MALTA , EUROSTAT Malta's economy is projected to grow by 4.5% this year and by another 5.4% in 2022, after a sharp contraction of 9% last year, according to the European Commission 11 29 AUGUST 2021