Real estate agency predicts coronavirus will lead to 10% drop in property prices

Property prices could drop by around 10% over 2020 and 2021 due to the economic impact of COVID-19, a report claims.

The report, compiled by real estate agents Property Hunters, predicts that property prices will fall due to decreased cash flow from short lets and conversions into long lets.

The estimated average cash flow from renting a three-bedroom apartment in Sliema in 2020 would have been around €31,238 in the absence of the coronavirus.

Because of COVID-19, cash flow will decrease to €23,429 in the case of a light impact, €11,714 if the impact is medium, and €2,929 if the impact is serious.

The effect on the fair value of properties, in terms of a decrease in prices, will be of -7.2% in the most optimistic scenario of a light impact, -12.3% if the impact is medium, and -17.2% in the event of a serious impact.

The crash in short lets will impact Malta’s GDP by at least 3% in 2020, the report says.

“Occupancy in holiday short lets crashed well before the Maltese COVID-19 quarantine came into effect by 35% to 67% in March. These figures will worsen over time until travel bans are lifted,” it says, adding that it expects hotels to be similarly impacted.

Domestic tourism will provide little relief to the industry, it says. “Rumours that the Maltese tourism sector will be ‘propped up’ by domestic tourists stuck in Malta have little foundation in reality. A shortfall of 4.5 million nights in Q2 2020 will occur even if all outbounds Maltese tourism were to be replaced with holiday within Malta.”

The report predicts that COVID-19’s impact on property prices could be short-lived, however, if historical trends are anything to go by.

“If history is to repeat itself, property price corrections during and after epidemics tend to be short-lived (drops around 10%). Even the 1957 Asian flu pandemic had modest effects on prices,” the report states.

It adds the caveat, however, that “this economy shutdown is unprecedented.”

COVID-19 was the catalyst for a correction in overly inflated property prices, the report says.

“In the short term, withering tourism and excess inventory will drive down yields and valuations,” it predicts.  “Forced sales, exacerbated by risk-averse lenders, are sure to present occasions for the opportunistic property buyer.”

Overall, the report expects the fundamental macro backdrop to the Maltese market to be positive. “The crisis will hopefully spur a shift away from speculative, low-quality inventory,” it underscores.