Real estate prices
Compiled from a report from the Central Bank of Malta 2005 (cut off date March 2006).

While property prices may have a significant impact on household wealth, with implications for private consumption, they may also have an impact on inflation since movements in asset prices may be a prelude to an upward movement in consumer prices.  

As indicated in the chart below, residential property prices resumed their upward trend in 2005, rising by an average of 10.4%, after having slowed own in the latter half of 2004 (1). The increase can partly be explained by developments in the market for finished flats, which account for around two-fifths of the index. This category was heavily influenced by the inclusion of a number of luxury units that came onto the market. However, the sharpest rise in prices was registered in the terraced houses category. Prices of all other categories of property also increased during the year, except those of town houses, which dropped marginally.

A number of factors contributed to the general rise in house prices (2), such as the continuing shift in preferences towards investment in property on account of the relatively low yields on financial investments. The drive for home ownership in view of the small size of the rental market is another important factor.

Notes:
(1) Trends in property prices are measured using the Central Bank of Malta's own index. The methodology of the index was revised in 2004 and finetuned in 2005. The latter involved an adjustment to the categories so that luxury units are no longer identified as a separate type of property but are allocated to their related category. The median Fisher index chained on a quarterly basis is being used as a measure of central tendency, in order to diminish the impact of extreme values. The Bank’s method of measuring house prices is expected to be reviewed further with the aim of developing a hedonic index, which will capture the impact of differences in the quality of dwellings on prices.

(2) A final withholding tax of 12 per cent on the value of property sales instead of the current system where profit on property transfers is taxed at 35 per cent. The sale of one’s own residence is to remain tax exempt and there are no changes with regard to the tax treatment of property transfers by companies.