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First published on this blog 25 January 2007 

Re: Escalating Property Prices

New Year 2007 was destined to be ushered in with a bang, and all guns pointed at the real estate market.

A rendezvous

It all started with a press release on the 6^th. The author was the Diocesan Committee. The subject matter was escalating property prices and the social upheaval hefty bank loans were causing amongst first time buyers. If the content didn’t pack enough of a punch, the timing certainly took the wind out of any opinions against.

Very briefly, and for the benefit of those not yet residents on this island, the first quarter of 2007 was already ear-marked as a crucial period, on a social debate level, for several reasons. I am listing below the main issues which were already expected to converge in January:

1. The resignation of Archbishop Mercieca and the upcoming inauguration of the New Archbishop Cremona, which as expected had all the media coverage, and which elevated to new heights, or rather rekindled, the Church’s popularity on the islands.
2. The hot debate on divorce, both at a European level, and here in Malta. In fact, a day before the Diocesan press release, the newspapers covered a scathing attack by Harry Vassallo, chairman of the Green Party (Alternattiva Demokratika) on the government for refusing to introduce divorce here in Malta, and also vetoing it in EU parliament.
3. The run up to the Euro adoption in Jan 2008, with over LM 200,000,000 (two hundred million Maltese Liri) still unaccounted for and mostly in the largest denomination available (Lm20 notes), which made it clear this amount had nothing to do with loose change in circulation, but mostly with undeclared funds.
4. The white paper on the archaic 1939 rent laws, tabled at cabinet level by Hon. Dolores Cristina, and soon to be made available to the public.

We can therefore better comprehend the Diocesan Committee’s sense of timing when they dropped their PR in the post. On the 6^th Jan, early morning, their verdict was in print.

After a couple of days, feedback in the form of articles and opinion pieces, started appearing in print. Letters from the public were minimal, in fact less then five letters appeared in the Times of Malta, two of which were penned by foreigners. There was also some television coverage, also non-representative of the public. I am listing hereunder, the main letters and opinion pieces which have appeared in print to date.

Related Property Articles to date on Times of Malta:

Jan 6^th.  Article “Church Commission says cost of property worrying”

Jan 7^th.  Editorial “Housing and the Common Good”

Jan 8^th.   Article “Plans for 386 flats – Crowne Plaza Site”

Jan 12^th. Article “Prospect of glut of unsold apartments”

Jan 12^th. Opinion “Property Prices” – Lawrence Zammit

Jan 14^th. Letter “Measures only honest brave politicians will take to bring down property prices” – John Consiglio

Jan 16^th. Editorial “You can say that again” (Homebuyers should resist artificially high prices)

Jan 16^th. Talking Point “Property: Malta’s Least taxed Investment” – Albert Cilia-Vincenti

Jan 17^th. Letter “Property and Tax Evasion” – Albert Cilia-Vincenti

Jan 19^th. Letter “Tax vacant property” – Arthur Soler (residing abroad)

Jan 20^th. Letter “Government’s part in property pricing” – Anthony Azzopardi

Jan 21^st. Opinion “The cost of Property” – John Consiglio

Jan 21^st. Letter “Bringing down property prices” – John Azzopardi

Jan 23^rd. Letter “Tax on Property” – Angela Bossert (from Tennessee)

Jan 24^th Opinion “Of Possessions and Obsessions” – Berta Sullivan

Jan 24^th. Letter “Property Tax” – Charles Camilleri

Jan 24^th. Letter “Housing Authority Expenditure” – Marisa Micallef Leyson

Jan 25^th  Letter “Property taxes a necessary evil” - Wilfred L. Camilleri (Canada)

An analysis to date.

The Diocesan Committee stated that the main reason for its PR was to stir a public debate; to find a way forward in an effort to maintain a healthy property market, without imperilling the first-time buyers' market, and all those trying to gain a foothold on the property ladder with only a minimum wage, and in many circumstances, one bread-winner. The former goal has been partly achieved, given a hot discussion did ensue between journalist and opinion leaders, also spurred-on by a couple of editorials. The latter goal will prove to be a Gordian knot.

The hurdles to a sustainable Maltese property market are mainly as follows:

1. The current non-alignment of the letting and sales markets, which in fact are completely independent from one other.
2. The lack of hard data and proper statistics due to a) misleading newspaper adverts b) undeclared amounts in property purchases prior to 2004 c) a data protection act which until recently prevented government departments from sharing information d) the reliance on previous erroneous data taken as correct, thus compounding errors in later reports.
3. The non-existence of any tension in the market given the lack of vacant property tax and council taxes etc. which are crucial in defining an efficient market.
4. The effects of the upcoming white paper on rent reform, if and when transposed to the property market.
5. The as yet undetermined effect of a possible introduction of divorce any time in the future, and how this will affect the property market.
6. The possible withdrawal of the state stipend given to students and University graduates, which action would impinge on the part-time job sector - a necessary source of income to a large swathe of the non-academic loan-paying population.
7. The effects of an open job market here in Malta, once the derogation period of seven years after accession to the EU has been terminated. 
8. The Maltese banks’ future position on the growing amount of property on residential loans which are being offered for rent. The current buy-to-let loans are non effective due to the incompatible rental and sale value for the same property.

Observations:

Fourteen years in real estate here in Malta, have consistently reinforced the following facts, which I currently consider the norm for most  first time buyers:

1. Young couples will usually borrow at the maximum allowable from their bank.
2. Few buyers can properly evaluate what they’re purchasing correctly. 
3. Many young couples supplement their wages with overtime and part-time jobs. Although, loan repayments decrease in terms of value over time, age also detracts from one's ability to maintain energy intensive jobs in certain sectors such as catering and construction. Overtime-allowance in government departments has also decreased substantially due to new policies.

Evaluations

Due to the unique property market dynamics of any small island, and furthermore with the sector also having to contend with a considerable amount of political jockeying, it is very difficult if not impossible to establish and impose proper evaluation methods. Building standards (or the lack of them) also vary greatly. Planning at a local level, is in a constant state of flux, and this was very evident up till late last year, with the latest local plan implementation.

In conclusion, the inability to properly establish a reasonably accurate evaluation of market prices, will always allow for a greater amount of speculation, and this of course will always undermine any effort to reign in over-pricing