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When Cyprus was revealed to be financially unstable and the Cypriot banking system reverted to chaos (leading to the closure of its banks for 2 weeks back in March 2013), many eyes turned towards Malta wondering whether this Mediterranean island might be next.
The Guardian helpfully wrote an article in which they stated that several other small countries, naming in particular Luxembourg and Malta, were trembling at the prospect of what might be in store for them after the Cyprus bailout.
So is Malta really trembling at the prospect of a possible EU bailout? Could the banking crisis that was witnessed in Cyprus really happen here? Well the simple answer is no! But the reason why Malta's finances are different need to be explained a little more thoroughly.
Why Malta Won't Need an EU Bailout
Lino Spiteri writing for the Times of Malta did an excellent article in which he underlined the major differences between the banking systems in Cyprus and Malta.
He explained that Cyprus has close links to Greece and so it followed that if Greece suffered a financial disaster, Cyprus might not be far behind, especially when you consider that the majority of banks in Cyprus were internationally active with a high dependence on foreign funds. Malta's banks are strictly regulated by the Malta Financial Services Authority and have a strong local deposit base.
The main difference is between domestic banking assets. In Malta the core domestic banks account for around 218% of GDP whilst smaller domestic banks account for 77%, so altogether that's just under 300% of GDP. Compare this with Cyprus which had 466% of its GDP tied up in the domestic banking sector. This proved to be too big for the Cypriot government to support.
Malta also is at less risk of non-resident deposits, as the majority of such deposits rest in international banks. Around 17% of deposits in Malta's domestic banks come from non-residents.
In fact Malta's Fitch Rating was recently given an A+ with a "Stable Outlook" in April 2013, whereas Cyprus only managed a B rating.
Malta's Economy and Growth
What has happened in the eurozone of late has no doubt shook up many governments who turned a keener eye to their own banking systems. Although Malta still enjoys an A+ rating with Fitch, this does not mean that we can't take heed from some of the lessons learnt in the Cyprus crisis. Accordingly the Maltese government have brought in new legislations which emphasises the need for preventative measures and early identification of any possible risks.
According to recent reports such as that by the Times of Malta in February of this year, Malta's economy has the second highest economic growth in the eurozone. Malta's GDP growth is expected to reach 1.5%, beaten only Estonia's 3% GDP growth.
The European Commission Economic Services also state that the growing economy will result in "above average job creation". Currently forecasts estimate that job creation will grow by 1.7%, whilst overall in the eurozone it is falling by 0.3%. Unemployment is also expected to go down to 6.4% compared to the eurozone's average of 12.2%.
Good news was in store for the deficit too, which is estimated to fall to 2.3%. The Maltese government say that domestic demand has driven the economic growth and that the future also looks good for construction investment which has been buoyed by EU funds.
Malta's strong links with Britain have also helped and it remains a popular place for ex-pat Brits to settle. According to the Telegraph, of the 4.5% of foreign owned real estate, the majority is British.
Property Market Growth in Malta
Whilst the rest of Europe experience a slump in the property market, including falling house prices and a sluggish industry, Malta's property market continues to rise steadily with the Times of Malta reporting a 1% rise in 2012 compared with 2011 whilst other European countries experienced an average fall of 2.5%.
The fact that the growth in property prices is moderate is a good sign of a stable economy as discussed previously and it also means that there is no shortage of buyers. The revival of the Permanent Residence Scheme in Malta has been good news for the Maltese real estate market as foreign investors are once again tempted to buy property in Malta, lured by the attractive tax incentives on offer.
This, coupled with high value real estate development has helped to sustain interest from overseas buyers. Newly built resorts such as those at Tigne Point and Portomaso which offer a mix of commercial outlet and luxury resident homes, are keeping the construction industry afloat, creating jobs and commercial opportunities.
These new developments also offer high quality accommodation at very attractive prices. Because whilst property prices are rising in Malta, they remain at affordable rates compared with other eurozone countries. New developments in sought-after areas such as Pendergartens in St Julians have 3 bedroom luxury apartments with starting prices of just €270,000.
Other incentives for foreign buyers include the Special designated areas which have seen residential developments go up along the waterfront and elsewhere in Malta and Gozo. Such developments include Ta Monita in Marsascala and Madliena Village in Gharghur where property prices also remain affordable.
The banks offer their own incentives to buy in Malta by offering mortgages to foreign investors at attractive and affordable rates along with deals for first time buyers and residents of Malta.
Character properties continue to attract expats and retirees looking for their own place in the sun, with restored townhouses and traditional villas remaining in demand.
Investor Opportunities in Malta
Malta remains an attractive proposition for investors as reported by an Ernst & Young survey at the end of 2012 which found that 86% of respondents to their survey stated that Malta was an attractive country for foreign direct investment and that current legislative framework was helping to encourage investors to set up in Malta. Over half also stated that they believed Malta would remain an attractive location for foreign investors for at least 3 years or more.
All of this means that rather than looking towards Malta with fear, other eurozone countries should be looking towards Malta for lessons on how to run their own financial institutions, as Malta is clearly doing something very right.
N.B. Information contained within this article was correct at time of publish. However, statistics and facts are subject to change. If you'd like to learn more about investing in Malta real estate, contact one of our experienced property agents.