Property market paradoxes

The survey on the property sector in Malta published a fortnight ago in The Sunday Times has confirmed that public opinion on this sector is replete with paradoxes. Moreover, the opinion of the majority more often than not contrasts sharply with the thoughts of leading opinion-makers that regularly write in the press on the subject.

While contributions in the press are constantly bashing 'speculation' and 'speculators', 82.3% of the survey, respondents agree that the construction industry is "the motor of the Maltese economy" and only 1.3% clearly disagreed with that statement. How's that for the evident gulf between what one sees in the press and what the general public thinks?

This result was obtained despite the use of the word 'speculator' instead of 'developer' in the questions of the survey - something that tended, consciously or unconsciously, to put developers in a bad light, since 'speculator' has a negative connotation that 'developer' does not have.

In fact 'speculation' and 'development' are certainly not the same thing. Someone who buys a house, demolishes it and builds a block of apartments on the site - in an area where this is permitted - is a developer, not a speculator. Someone who buys land outside the development zone in the hope that some day it will become valuable developable property is a speculator because he is actually speculating.

Speculation, after all, is not restricted to property deals: there are those who speculate by buying shares in the stock exchange in the hope that the shares increase in value in a short time. Doing a straightforward business deal by buying property at its fair market value and redeveloping it to make a profit is not speculation.

The abuse of the word 'speculation' has evidently led the compiler of The Sunday Times survey to 'load' his questions! Another question in the survey, for example, asked respondents whether they "agree that construction... for speculation should be halted". This evidently loaded question yielded only 37% in favour and there was even a relative majority in favour of "speculation"!

But asked whether houses should be torn down to make way for flats, 56% disagreed, even though this is a form of redevelopment that is bound to increase once we strictly limit the areas within the development zone. However, in another question on high-rise buildings, an overwhelming 72.3% agreed with the concept, while a much smaller majority (55%) said that they would live in such apartment blocks.

Do you get the picture? A clear majority of Maltese disagree with flats in place of houses but they want high-rise buildings for other people to live in, so long as they are not built next door!

The compiler repeated the popular misconception that there is an excess of empty property that should be somehow used rather than allowing more building. The problem with this misconception is that empty or unused housing units do not necessarily translate into property available for purchasing or renting. The property market is made up of property for sale and not of empty property.

Respondents were also asked whether there should be some control to prevent the continued escalation of property prices. Surprise, surprise: 98% answered yes! Predictably, in this country where 'the government' is expected to solve all our problems, a sizable minority of 44% said that it is Government's responsibility to restore old houses if those living in them cannot afford to do so. I wonder what they would have replied if the respondents were asked whether they agreed with an increase in taxes so that Government could afford to do what they expected of it!

Yet another paradox is apparent in people's attitude towards the rental market; 83.3% agree that holding on to old rents is unfair and this should be changed. But a clear majority (58%) said they would not consider renting property. This explains, perhaps, why the rental market was not enhanced when it was actually liberalised for all rent titles established after 1995.

The higher than average support for the 'unfair' rent laws among certain sectors of the population should raise many an eyebrow. While, on average, 15% still say that the old rent laws are fair and should not be changed at all, this is as high as 27% in the DE socio-economic group that mostly supports Labour. Perhaps this is one reason why Labour has kept its mouth shut tight about rent reform!

The survey did not attempt to find out the reasons that people attribute to explain the rise in property prices over the years - factual reasons that people tend to ignore. In the last few decades, there have been four big factors that have completely transformed the property market:

• a substantial increase in population from 345,000 in 1985 to 404,000 in 2005 - an average increase of 3,000 persons per year.

• a decrease in the average number of persons per household, a trend that is set to continue; which means that we need more housing units, even if the population stabilises!

• an increase in people's expectations of comfort; hence new modern housing units are preferred to old houses.

• more foreigners have discovered Malta as a result of official tourism policy intended to make it more accessible; hence more property is being bought by foreigners even though they do not live in Malta.

Another reason why there has not been a drop in property prices in spite of the fact that there has been an increase in the supply of property is the result of people's expectations of future prices. If property is expected to increase in price, property owners will withhold from selling (why sell today if I can get a higher price tomorrow?) and prospective buyers will want to buy even more (buy today as otherwise I will have to spend more tomorrow).

The widespread expectation of higher property prices therefore creates a double blow: a lower supply and a higher demand than both would be. Hence the otherwise inexplicable increase in prices.

It would have been really interesting if the survey attempted to seek people's perceptions about these factors. In that case, I am sure that more contradictory answers would have ensued.

micfal@maltanet.net