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.

Comments

  1. Anonymous8:09 am

    So in short all these real estate agents are, as I suspected, selling hot air! All areas are highly sought after (as if) and one needs to decide FAST since the market is moving FAST. In the meantime I see the same properties for sale for at least half a year and no price drop or alterations.

    Funny that they keep on believing that they actually can keep up this facade.

    ReplyDelete
  2. great post

    The places like Malta are in huge demand for its unique weather

    Hope to see more posts related to Malta Property for sale.

    ReplyDelete

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