The speed at which and the dynamics underpinning an eventual price stabilization in the property market are, at this stage, still relatively challenging to determine given the degree of uncertainty surrounding many of the demand and supply side factors, Economist Dr Ian P. Cassar told this newspaper.
A recent National Statistics Office (NSO) report noted how, whilst property prices declined between the fourth quarter of 2018 and the first quarter of 2019, they actually rose by 6.5% when the latter is compared to the same first quarter of 2018.
An assessment of property prices based on a comparison from one quarter to the next, Cassar explained, may overlook possible issues of seasonality. Furthermore, he explained that changes in property prices are ultimately influenced by the interaction of the various demand and supply-side factors within the market.
“With respect to the determinants of property prices, an analysis of such factors is one which should be undertaken from a longer-term perspective, in terms of the trend growth of property prices, rather than an analysis of shorter-term fluctuations from quarter to quarter.”
Property prices have skyrocketed in recent years, with the local market turning into more of what one would expect from large cities in major countries – specifically that the rental market has become more prominent and discussed than before.
Cassar went on to note that there were various issues that affected the demand and supply sides of the equation.
From the supply side, he explained that land use regulation and the number of construction permits issued, which both influence housing stock, all play a key role, together with the underlying developments in construction costs.
New cranes and construction sites have become a daily occurrence on the island with the chances of a slow-down seeming unlikely at this point, particularly when one notes that 2018 saw the highest-ever number of permits approved by the Planning Authority (12,885).
Recent changes to regulation just this month would be an example of this, as stakeholders are now expected to keep to higher standards in a number of areas and phases of construction.
From the demand side, Cassar said that issues pertaining to changing demographics, including the influx of foreign workers, income and wages, fiscal policy, as well as credit constraints are all key drivers of the demand for housing.
The influx of foreign workers undoubtedly plays a part as the number of resident and working permits have also skyrocketed in recent years.
Higher paying jobs also potentially further increased property prices, which when contrasted with wage depressions at the lower end of the pay-scale creates a difficult to read scenario.
Banks have also been holding off on giving out loans too since individuals are not making enough money to even break the threshold of what they need for a bank to loan them enough for the cheapest of apartments.
Moving onto market stabilization, Cassar said that it is expected that in the longer-term property prices should eventually stabilize as either supply catches up with demand, or demand slows down to meet the supply.
“The speed and dynamics of this adjustment are however, at this stage, still relatively challenging to determine given the degree of uncertainty surrounding many of the demand and supply side factors.”