With the COVID / coronavirus outbreak in full swing, we are currently reviewing our property market outlook for 2020. We intend to publish a full update by the end of this week (edit: you can download the free 2020 Malta property outlook here).
As a preview, we have decided to share some of the preliminary readings on the Maltese short let market. The situation is nothing less than dire, with an average crash in occupancy rates (number of nights when properties are rented out) of -61% versus 2019. The COVID-19 effect is being felt almost equally across properties of all quality ratings and locations.
The hit to the Maltese economy, which is disproportionately reliant on income from tourism, will be severe. All else equal, if the effects are contained within March and May 2020, we forecast that the tourism crash will hit the 2020 Maltese GDP by 1.8% to 2.25%. The situation is fluid but a short-term recovery can be ruled out at the moment, also in light of flight cancellations being operated by the main airlines. It is likely that we will have to further downgrade our forecasts.
The impact to property prices will mainly depend on the amount of leverage taken by Maltese property investors. In recent years, we have seen progressively more buyers take on risk and rely on short let rates (higher than long lets) to finance further purchases. While the COVID effect on tourism flows will almost certainly be temporary, distress situations caused by overleveraged investors suffering a shortfall in income may result in fire sales. Panic will also play a role. Such situations could be attractive for the opportunistic investor.