Letter to The Times of Malta - Insight into the property market

Letter to The Times of Malta, from Francis Raeymaekers, Mellieħa.
Date of publication: March 28, 2012

I refer to the editorial Mixed Messages From The Property Industry (March 21) and as a director of one of Malta’s few property search companies would like to make some observations.

The Maltese construction sector is in the doldrums for two significant reasons: lack of funds and greed. Greed as typified by substandard construction where corners are systematically cut in the quest for ever greater “paper” profits. Some glitzy developments built with no or little ventilation, window fixtures installed with foam guns, and so on and so forth. Greed, as typified by overdeveloping developments, constantly adding to the current stock by clever manipulation and re-application of planning permissions. All impact the resaleability of the developments, creating substantial overhang and despair for owners who made the error of buying in the first place. The word gets out and funding dries up. The banks know first, as it is usually their clients who are caught in negative equity situations. After the banks, the public soon gets hold of the facts. Malta is small enough to always know a friend who has a friend who… The buyers become aware.

With regard to oversupply, this is both correct and false at the same time. There is a vast oversupply of small utilitarian apartments that few would ever want. Granting planning permissions without consideration to parking issues is not an accident waiting to happen, it has already happened.

Malta is blessed with a population who are all property experts, from the President down to the baker’s apprentice. How one would attempt to regulate this is difficult to say. Perhaps insisting, as the Knights of old used to, on a start and completion date for each application or introducing a “windowless” tax on incomplete projects might mitigate the number of partially built concrete and stone carbuncles that litter the island. Perhaps another idea might be to impose solar water and power installation on any new build or redevelopment. While this might add to the individual cost, so restricting numbers beneficially, it would also be of great value to this energy-dependent island and its economy as a whole.

Strangely the oversupply of utilitarian property is matched by a shortage of saleable property that is well built and in good, desirable locations. We often tell our overseas clients that there are less than 500 properties worth buying on the whole island, in all categories, from palazzos to studios. Of course, worth means different things to all. It can mean a roof over a head after a hard day’s work, a place to bring up a family, somewhere to retire to, a holiday home or even an investment. The last three are usually relevant to overseas clients.
Overseas clients are often told there are less than 500 properties worth buying on the whole island

The issue of valuation is another difficulty. The current statistics based on advertised prices are worthless. It should not be beyond Maltese sophistication to produce figures from actual transactions based on figures that the government already has in its possession. How else do they collect stamp duty? The seas around Malta have become much cleaner and clearer in the last 10 years but government administration and state bureaucracy remain stubbornly opaque. This may have worked well in the past but is no way to run a modern 21st century EU state.
Another area of growing indignation, especially among non Maltese EU citizens, is the discrimination in the pricing of utilities. The elite legal opinion is that there is no discrimination. I wonder if Maltese EU citizens, renting an apartment in London, Berlin, Brussels, Paris or Rome, were told they had to pay 30 per cent more for their utilities than other local users, would accept it as being non-discriminatory? Even if a non-Maltese EU citizen buys a property in Malta, they have to apply to the director for citizenship and of expatriot affairs for a “registration certificate”, which is not needed if looking for a job. If this neatly ties up loose ends within the opaque Maltese legal community, it completely ignores the perception of discrimination, which is growing daily within the “expat” community in Malta. This community is very important to the Maltese property market and is ignored at Malta’s future economic peril.

Finally, with regard to Maltese estate agents, they are what they are and just doing their job. If the headwaiter in a restaurant greets clients saying “The food is terrible here, what would you like to eat?” the restaurant will not survive for long. The property market is not different. In a way, a property search company is like a restaurant guide. It tells it as it’s tasted it and can pull a few recommendations from a lengthy and often “flowery” list of dishes and wines.

Conservative Malta tends to be comfortable in opacity much as the Italian economy was once described, as a goldfish in a pot of cold water on a hot stove.

High interest shown in Malta Housing Authority Rental Scheme

The Housing Authority has received a strong response to the new scheme that entices people to offer their vacant properties up for rent to provide a home for the 535 people on the waiting list.

So far, owners of more than 500 properties have expressed interest in the scheme which opened on February 27 and closes on April 30.
The authority is, however, expecting a surge over the next few weeks when property owners start receiving compliance certificates from the planning authority confirming their properties were built according to permit.

A spokesman for the authority said that, through this scheme, owners of vacant houses or apartments in Malta and Gozo may lease their property to the authority at a withholding tax rate of five per cent instead of the usual 35 per cent rate.

The property will then be rented out by the authority to its clients for a minimum of 10 years.
Among the conditions is that the property has to be finished, has been empty for the last six months and has a monthly rental fee of not more than €400.

An authority spokesman said since the scheme was publicised the website www.skemakiri.com received more than 2,200 unique hits. Moreover, around 40 people turned up at the authority’s customer care department requesting more information.

Some of these, the spokesman said, claimed they could offer dozens of properties.
The authority is hoping to find between 450 and 500 suitable properties, which could include apartments, houses or maisonettes, to address the priority list of applicants for alternative accommodation.

An independent board has been set up to evaluate the applications and choose the properties focusing on those offering most value for money and addressing the needs of people on the waiting list, the spokesman said.

According to the 2005 census, there are more than 53,000 vacant dwellings in Malta, an asset estimated at some €7 billion. Of the vacant dwellings, 20 per cent are summer residences and 25 per cent are dilapidated and have to be redeveloped.

This scheme seems to be attracting more interest than a similar one launched by the authority in 1999 offering property owners a grant of up to €8,000 to renovate their properties on condition they then rented them out for a minimum of 10 years.

Source: The Times of Malta March 22, 2012

The Times of Malta Editorial - Mixed messages from the property industry

Source: The Times of Malta Editorial - March 21, 2012

It is increasingly difficult for ordinary people to understand what is really happening in the property development market. Economic statistics published recently indicate that “the construction sector’s contribution to the economy has been shrinking over the past four years”. On the other hand a leading estate agency “saw an overall increase of 12 per cent in sales of property and an equal increase in letting last year”. So what is really happening in the property market?

An analysis of this market has to start with an examination of the current supply and demand dynamics of this industry. There are various estimates of the amount of properties available for sale at present. Michael Falzon, president of the Malta Developers’ Association, confirms that “there are a lot of units for sale from oversupply that was built over the years”. Unofficial but reliable estimates put the figure of vacant properties at between 50,000 and 70,000 units. This explains the rather pessimistic views of some estate agents who clamour for more support from the government in the form of fiscal concession and less onerous conditions in the High Net Worth Residency Scheme.

The local property market suffers from some intrinsic weaknesses that make it difficult for business analysts to gauge with more accuracy the state of health of this industry.

Official statistics kept by the Central Bank and the National Statistics Office may not be capturing the real movements in prices of property deals. This could be either because statistics are based on advertised prices, or because the sales actually recorded in the public registry do not reflect the true prices at which properties are bought and sold. The local property market remains opaque and, despite its small size, the monitoring of prices is more of an approximation than an exact science.
Another weakness of the local property market is the hype used by estate agents who, rather than give the hard facts that potential buyers need to decide when to invest in property, resort to marketing rhetoric that today is so easy to discredit as being outright misleading.

The facts are that the property market at present suffers from massive oversupply; that prices have not fallen further because banks are understandably being very considerate with developers who have not honoured their repayment commitments; that some developers are still getting building permits from the Malta Environment and Planning Authority and are building new units thereby making the oversupply situation even worse; and that the property market is rather illiquid making it not quite the ideal investment haven that estate agents would like prospective investors to believe. There are, of course, certain sections of the market that are doing well. Well finished properties in prime locations are few and therefore there is always a good demand for such units that will continue to appreciate despite the economic slowdown.

Badly built properties in areas that are less attractive will continue to remain unsold until developers realise that they need to bring down prices even further to stimulate some interest in potential buyers. This is how most markets work and it is amazing how many still believe that in Malta the property market is driven by different dynamics.

The falling contribution of the construction and associated industries to the country’s economic growth is regrettable. But it does not justify using taxpayers’ money to prop up demand from reluctant potential buyers. Controlling excess supply will be a fairer and better way of strengthening the property industry.

Three year slump in Malta property sales, reversed - More foreigners buying property

The number and value of properties purchased by foreigners increased significantly last year, reversing a three-year slump in the sector, according to figures obtained by The Times.

But, while Finance Minister Tonio Fenech welcomed the results as evidence that economic growth was attracting foreigners to purchase “property of quality”, realtors said the €186,000 average price of these properties was “nothing to write home about”.
According to the figures, foreigners bought 994 properties in Malta and Gozo in 2011 – a significant increase over 2010, when foreigners bought 886 such properties.
Most significantly, the €185 million total value represents a 20 per cent increase over the corresponding 2010 and 2009 figures, when properties sold to foreigners fetched approximately €146 million. While the number of foreign-bought properties is yet to reach 2008 levels, foreigners spent practically as much money on domestic real estate last year as they did in 2008.