An overview of the residential rental market – particularly in Valletta – in relation to the impact of the COVID-19 pandemic.
Residential rental market
In recent years, a strong Maltese economy had encouraged a significant number of foreign workers to base themselves in Malta. This was one of the primary causes for the rise in rental rates, factored with the growing short-term private accommodation market. However, the ongoing effects of the COVID-19 pandemic has the potential to reverse many of these pricing gains.
Overview of the Covid-19 impact
The COVID-19 pandemic has impacted the residential rental market in a number of ways. From the demand side incoming tourism has ceased on the island. A substantial number of third-country nationals have been made redundant and actively encouraged by the Government to depart the island, thus increasing the number of vacant residential properties. Furthermore, rental pricing is also impacted by a sustained increase in property supply. In consideration that the construction industry was not significantly affected by the non-essential services measures introduced by the Government throughout the pandemic.
If one had to view the Valletta rental market as a case study, there had been continuous investment by the Government and private investors over the recent period, especially in the run-up to, and immediately following the 2018 European Capital of Culture calendar. Much of the private investment centred around the renovation of dilapidated properties for residential and hospitality purposes.
Tourism
The COVID-19 crisis, and with it the retraction of tourists to the island, has encouraged a number of short-let property owners to consider renting their property on the long-let market at heavily discounted rates in comparison to pre-COVID-19 rates. The volume of such properties entering the market, numbered at over 300 short-let properties in the Valletta market alone, will place pricing pressure on the whole of the long-let market.
The COVID-19 crisis, and with it the retraction of tourists to the island, has encouraged a number of short-let property owners to consider renting their property on the long-let market at heavily discounted rates in comparison to pre-COVID-19 rates. The volume of such properties entering the market, numbered at over 300 short-let properties in the Valletta market alone, will place pricing pressure on the whole of the long-let market.
Short-let property characteristics
Short-let properties are primarily designed for a vacation rental, such that many have minimalist furnishings to enable quick cleaning turnaround times. Furthermore, properties located in an Urban Conservation Area (UCA) tend to have a comparatively smaller floor area(due to having been built prior to modern Planning Authority guidelines) than similar properties outside the UCA. In addition, many short-let properties have unique Maltese characteristics such as exposed stone and other Maltese features, such as picture frames and artisan crafts, which may not appeal to a tenant for a long-let rental, where the décor tends to be more abstract to attract a wider prospective tenancy market. Vacation rental properties are now being re-purposed to welcome long-let tenancies, and this has necessitated the provision of certain basic amenities, such as a washing machine.
Valletta
Until the return of holiday rentals, being that the majority of the short-let properties in Valletta tend to be one-bedroom units, the City may begin to be inhabited by a younger single status population. The majority of these properties would have recently undergone a significant investment which, under normal circumstances, would not be possible to re-coup over the period of a standard long-let rental.
Whilst undertaking an overview of the residential rental market, it was noted that properties within the Casa Rooms portfolio have witnessed a decline, such that properties that were previously priced at €1,500 per month have now been reduced to €900 per month, with some properties even being rented for €500 per month, a price level that was considered unrealistically low just a month ago. Many owners are prefering to rent their property at breakeven, or at a loss, when factoring in the loan repayments, management fees, and associated expenses. One must also bear in mind that older properties do incur a higher rate of expenses in their ongoing upkeep.
Conclusion
Adding to the downward pricing pressure, a number of expatriates have departed the islands due to the evaporation of work prospects. It is to be noted that a number of these expatriates, whether third-country nationals or EU citizens, may have been sharing a property with three to six persons. Upon these persons leaving the islands, the property owner will struggle to achieve similar rental rates. As a result, upon the market price decline tenants, who had previously been sharing a rental property, may now find that they are able to afford to either live alone or to share a similar-sized property between a smaller number of co-habitants.
On a macro level, whilst undertaking this overview of the residential rental market, it is to be witnessed whether with remote working becoming more acceptable throughout the workforce, from both an employee’s and an employer’s aspect, that remote workers will utilise their freedom of work space and base themselves in more appealing locales. Thus with Malta’s year round sunshine, we stand a strong chance of tapping another new market prospect post-COVID-19.
As a property management service provider, Casa Rooms specialises in the provision of long-let and short-let property management.
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