A few days ago the respected credit ratings agency Fitch has confirmed Malta’s Issuer Default Rating at A+ with a stable outlook.
The Impact of the Rating on Property
As witnessed pre-, during and post the pandemic, Malta’s property sector has been extremely resilient with record Promises of Sale being signed month after month. Property prices also saw a steep increase, although this has attained more sustainable and realistic long-term levels. Due to the curb in travel during the pandemic, local interest in larger properties offering lifestyle opportunities and a renewed demand for investment properties fuelled the local residential property market as well as new units offered for sale by the activity of the building and construction sectors.
Additional government incentives such as reductions in stamp duty and unbeatable financial opportunities for first-and second-time buyers increased market activity dramatically. Malta’s greylisting in June of last year caused some jitters with international property investors, but this has not affected interest by local buyers in the slightest. This attitude of low or no concern looks to now be trickling down to foreign investors as well, especially with the government doing everything in their right to clamp down on questionable sources of wealth. This has had a positive effect on all sentiment as expressed by the FATF and ratings agencies such as Fitch, boding well for the economy as a whole.
Having bridged the economic slump in world property markets caused by the fallout of Covid, Malta’s real estate sector is in an excellent position to cope with the further expected increase in market activity. Several factors are also mitigating aggressive marketing of Malta’s beneficial tax regime and residency options, as the effects of Brexit are far from over with many UK expats investigating other options to make their money go further. In addition, other EU countries such as Spain, France and Portugal are becoming less attractive due to their respective policies on increasing wealth tax, which includes taxing real estate assets held by foreign investors. As Malta has no wealth or inheritance tax, no council rates and taxes and nearly no tax on capital appreciation, the local real estate sector has seemingly only one way to go and that’s up!
Factors driving the overall rating score by Fitch
• Malta’s Weaknesses and Strengths
The country’s rating is supported by high per capita income levels, strong growth and a sizeable debt reduction. Along with a large net external creditor position, positivity is balanced against Malta’s large banking sector and its compact economy. Concerns were raised regarding public finances and fiscal deficits which resulted in an increase in the public debt burden.
• Outlook May have Weakened but there’s a Strong Economic Recovery
Malta’s economy bounced back strongly the previous year after the contraction experienced in 2020 caused some concern. The forecast of a rise in 5.7% for the GDP was well exceeded with a 9.4% result in 2021. Figures were also adjusted for this year due to external factors that raised concern such as the war in Ukraine and sanctions imposed on Russia. Malta has limited direct ties to these countries but its small and open economy may pose some risk. Malta’s tourism market is well on the road to recovery although figures are still lower that of 2019. Services exports and private consumption are expected to further increase.
• Price Increases Limited due to Government Intervention
Inflation is predicted to rise to 4.1% for this year, but local households have thus far not been affected to the rise in gas and electricity prices due to fixed-price purchase agreements. Malta’s government is committed to controlling prices through measurements such as subsidies and capping the price of wheat imports.
• Fiscal Deficits
This narrowed marginally over the last two years and there will be a slower improvement in public finances. Solid but nominal growth of Malta’s GDP and a strong labour market will continue to support government revenues.
• Public Debt
Any increase in government debt will be offset by negative stock-flow adjustments and the strong but nominal GDP growth.
• Institutional Reforms
Along with the strengthening of judicial and anti-money laundering frameworks and part of the government’s Resilience and Recovery Plan, Malta’s World Governance Indicators continue to outperform the “A”median after a dip in 2019/20.
• Greylisting by the FATF
This event in June of 2021 has not materially affected Malta’s economy up to this point, as evidenced by the country’s strong economic recovery and the bullish performance by its financial sector. An on-site visit this year will see the FATF voting in June next year whether to take Malta off its much-maligned list.
• The Resilience of the Financial Sector
The local household and banking sectors will continue its upwards swing and Maltese households possess ample liquidity to pay off debt burdens quicker than expected. Malta’s Central bank also introduced measures to strengthen the resilience of borrowers and lenders against financial vulnerabilities.