The Villa Madama auction













Something is clearly amiss. A landmark property has just gone under the hammer, selling at an unbelievable price when compared to other properties. But here's the quandary. Can such a property be benchmarked at all?


My starting point is pretty basic. How many upmarket apartments can be bartered for this well maintained landmark property of historical value located next door to the President of Malta's palace?The shocking answer seems to indicate not even two.


The units I chose are at the average price range for a new upmarket property in the Sliema Tigne' peninsula. This location was selected since the units there were targeted at more or less the same client/investor profile which would be attracted to a residence or going concern such as Villa Madama. A significant number of these units are also up for sale with the interim owners keen to sign a deal, and therefore more likely to market the property at the best offer they can muster, unlike other slower market segments where attempts to maximise profit characteristically take longer to be tempered. These owners have purchased directly from the developer and want to sell before the end of the year when the units in question will be ready to move into. And so we have an apparently irreconcilable situation. Either Villa Madama has been sold to a bank at a giveaway price; or else this Tigne' apartment project, under-written by a different bank, is grossly over-valued and apartments have been snapped up at the wrong price, with a minimal forfeitable deposit.

Some information about Villa Madama. The original property seems to have comprised only a few rooms, but was certainly commissioned by and built on the grounds of the Grandmaster Antoine de Paule from the Knights Hospitaller, who also founded the Maltese town of Paola back in 1626.

The original building formed part of a country residence for de Paule and his friends, on the San Anton Palace grounds, part of which nowadays serve as the President of Malta's residence. The villa is named after one of the Grandmaster's friends, Caterine Valente.

As a restructured and enlarged art nouveau style property, Villa Madama was more recently used as a family residence, subsequently becoming a wedding venue, then a cafeteria and wine bar also doubling as an art exhibition venue. It is located in a very sought after area between Balzan and Attard, and is flanked by the President's palace, the very popular San Anton Gardens, and also shares a quaint pedestrian road with the leading restaurant Melita Gardens, and accompanying Mezzanin Wine Bar. Across the main road lies the Corinthia Palace Hotel with other restaurant venues, a sports and a pool complex all attracting many corporate customers.

Villa Madama has just been auctioned off to Lombard Bank for €990,000, while as already explained, another bank has recently underwritten a massive project in Tigne' Sliema, with current owners now advertising 3 bedroom apartments (140 sq.m. + very large terrace and views) at €550,000 without car space. That puts Villa Madama's value at €20,000 LESS then two 3 bedroom sea view apartments in Sliema Tigne'.

Upmarket seaview apartments are certainly not in short stock here in Malta, with several hundreds more already on the drawing board, and government revealing plans last weekend for yet another project for 300 similair apartments on the previous White Rocks complex near St. Andrew's. In comparison there is a dearth of well located, well maintained buildings of historical significance, and with a commercial license to boot.

One would therefore certainly expect the value of Villa Madama to be at the very least on a par with two new Sliema seaview apartments, rather than €20,000 short. And that still leaves you without a parking space.

Comments

  1. Anonymous1:28 pm

    Has it occurred to you that the properties in malta are highly overvalued. And the banks are actually paying a more realistic price instead of an overinflated one.
    Prices set by an auction reflect and auction market process , with generally a fairer price.

    ReplyDelete
  2. ....in which case, by recently underwriting the Tigne' project, the other bank is set to cause investors there a lot of grief. Either that, or Lombard Bank just made a killing.

    ReplyDelete
  3. Anonymous6:51 pm

    When theres a bull market in anything be it property to tulips, most people wouldnt believe that there is less value in something, the classic definition of a bubble.

    Maltas real estate indices are based on asking prices not bank indices related to actual transactions.

    Wait for the bubble to pop, or realise it has popped and there is coverup which aims to maintain the status quo.

    The supply on the market is too huge to justify the minimum price drops we are seeing. Everyone has an interest in artificially maintaining the price. From property agents due to commission to government agencies, or banks which would need to drop rates

    So the party continues till its too late....

    ReplyDelete
  4. So WHEN is this bubble going to burst? Burst means BANG and CRISIS! Or do we have a special bubble here in Malta that will simply deflate with a barely an audible hiss as if nothing ever happened??

    ReplyDelete
  5. Paul Sibbald10:48 pm

    As a Maltese born son of a UK government official I’ve always retained an affection for Malta, albeit a fairly distant one. After 14 happy childhood years I left as an impressionable teenager in 1967 and been back a couple of times since, the last being in 2006. I’m currently approaching retirement and looking around for possible settlement locations and, with my background, Malta is an obvious possibility. However I am struck by the high Maltese property prices as I trawl through the real estate sites. It seems that the traditional property market and the newer ‘investor’ properties do run at different levels but what all sellers seem unable to grasp is that values can go down as well as up. For me it seems a market waiting for a major correction and regrettably for me a potential market removed from my list. I perhaps unwisely presume that the government and MEPA has a plan but as we’ve seen in the current economic crises, governments and regulatory authorities around the world lack credible strategic thinking.

    ReplyDelete
  6. The high-end property market here in Malta is still very resilient given there is no vacant property tax and investors are still snapping up unsecured bonds which in turn prop up development projects.

    Local banks are also still offering refuge. Have a look at this Times of Malta article dated 24th June 2010 http://www.timesofmalta.com.mt/business/view/20100624/news/hotel-san-antonio-plc-shows-financial-muscle and don't miss the last 4 paragraphs. The hotel and property development sector is closely interlinked.

    When, and if indeed the market does implode is difficult to establish given the ease of direct government intervention on an island this small. What is very probable though, is if it does implode, it'll be the small time investor who will bear the brunt, while the people spearheading these large development initiatives will remain well protected behind legal and financial firewalls.

    Meanwhile, the lower-end residential units are not adding value, but are also very resilient to downward trends given the strong extended family networks here in Malta, and their readiness to assist next-of-kin financially, and the fact that most unsuccessful sales will have the local owners simply sitting put and refusing to sell at a loss.

    The weakest link in this market is the foreign owned property sector, where sellers who decide to leave the island for good, must close a deal within a set period, and that's where asking prices drop significantly. Given one man's misfortune is another man's fortune, this will also be the sector where the market will eventually regenerate from.

    ReplyDelete
  7. interesting read thank you.

    ReplyDelete
  8. Paul Sibbald6:36 pm

    Have a look at this article, talking about falling Canadian property prices http://globaleconomicanalysis.blogspot.com/2010/07/vancouver-home-sales-drop-30-percent.html.
    The interesting bit is a suggested Housing Collapse Cascade Pattern. The author suggesting Canadian parallels with the US. At what point do you think the Maltese property market is on the list? Its certainly carrying high inventory levels and bubble denial is in play.

    ReplyDelete
  9. Thanks. Will have a look.

    With regards to your question, Bank of Valletta has been selected for stress tests by the European Union. According to the Committee of European Banking Supervisors "the stress testing exercise does not provide forecasts of expected outcomes, but rather a what-if analysis aimed at supporting the supervisory assessment of the adequacy of capital of European banks."

    Even the perception of such a result could be enough to swing the market; either way. The choice of this bank is very significant to anyone familiar with local business here.

    The news broke out on Times of Malta at 21.39 CET yesterday 7th July.

    ReplyDelete

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