A healthy discussion about the real estate market in Malta took place on Wednesday at the First National Real Estate Forum, organised by Economic and Management Consultancy Services (EMCS) at the Malta Hilton.

The objective of this forum was to assess and evaluate the performance of the real estate sector in Malta, taking present market bearings and, at the same time, trying to predict a direction.

Undoubtedly, the property market in Malta has shown a strong performance over recent years. The House Price Index of the Central Bank of Malta indicates that between 1987 and 2004, average property prices increased by 10.3 per cent, offering an average return of 7.8 per cent per annum.

Various studies also suggest that built properties have outnumbered the estimated increase in the number of households. Malta also has the largest number of dwellings built per 1,000 inhabitants.

At No. 22, Malta tops the EU table, with highs of 14 in Spain and Ireland and lows of 0.75 in Latvia and Lithuania. Cyprus has a house building rate of seven.

Speakers with various backgrounds on the subject included Professor Joseph Falzon, head, Department of Banking and Finance, University of Malta; Douglas Salt, president of the Federation of Estate Agents (FEA); Maurice Tabone of Tumas Group; Adrian Said, chief co-ordinator, Competitive Malta and EMCS director; Karl Montfort, economist, Europa Research & Consultancy Services Ltd; John Soler, chief officer, Credit, Bank of Valletta; Godfrey Swain, head, Personal Financial Services, HSBC; Simon Anastasi, assistant general manager, Middlesea Insurance; Mark Guillaumier, chairman, Malta Stock Exchange; Francis J. Vassallo, BAWAG (Malta) chairman; architect Silvio Farrugia, assistant director, Planning; architect Ray Demicoli, Demicoli & Associates; Angelo Xuereb, chairman, AX Holdings; Laurence Grech, The Sunday Times editor; Peter Perotti, general manager, Valletta Fund Management; and international property expert Julius Nehorai.

A wide range of topics related to real estate were discussed, but the forum focused on four main issues: Malta's real estate market and the contribution of real estate to the economy; financing the development of real estate, including banks' exposure to the real estate market and the development of new financial services; urban planning, the development of high-rise buildings and designing for the future; and investing in the international property market.

The property and construction sector in Malta has grown extensively and is still growing very fast. Proof of this is the number of projects either under construction or scheduled for construction in the near future.

Projects, such as the Midi project at Tignè and Manoel Island, Time Square in Sliema, Pender Gardens in St Julian's, the former Holiday Inn site, the ex-Mistra Village, the former Mamo Garage complex in Gzira, other sites in Marsa, Bugibba, Gozo and several others will definitely increase Malta's property stock.

The big question seems to be, and remains unanwered: Is there an over-supply of properties? An over-supply would entail a shortage of demand, but is there really a shortage?

"We can no longer consider demand purely local or purely oriented at the purchase of a property to live in. Real estate has effectively become a sector that is attracting substantial investment and there is an active market within the sector that entails the purchase and re-sale of a property several times over in a relatively short period of time," said John Grech, the forum chairman.

"This is a reality we are living today," Mrs Anne Grech, forum director, said in an opening speech.

"And this reality is having an impact on our GDP, thus influencing a number of home owners and potential home owners, and involving contractors, developers, investors, banks and buyers, locally and internationally."

Issues, such as whether one may consider the sector to be in an over supply situation, evaluating the segmentation of the sector, and considering the way Malta has positioned real estate internationally, were discussed.

The Mediterranean region, together with fast development in countries like China, India, and elsewhere in Asia, has also experienced extensive real estate development, particularly in southern Europe.

"We should therefore not consider what has happened in Malta in recent years in isolation, and the way we are positioning our real estate market, particularly now that we are EU members, is of vital importance," said Mr Grech.

Ray Sladden spoke about the Tumas Group. "Portomaso was and remains a pioneer in property development. It is a cocktail of real estate, the very first multi-purpose development for Malta." He advised "stick to quality, not quantity", talked about foreigners taking up residence at Portomaso and how the value of their property clearly rose, therefore marking Portomaso's contribution to the economy.

Mr Tabone continued with an anecdote, saying he had sold his first property, a block of tiny apartments, for the sum of Lm1,100. The picture today is very different, with large developments coming on stream in Sliema, St Julian's and other areas.

"However, for a development to be a success, it's location, location, location! One also needs to plan international media campaigns to attract people to our shores. Foreign owners are important generators of tourism."

Douglas Salt spoke about this year being the year for exciting new projects. Without analysis, the number of units coming on the market appears to be daunting. Analysis will show that the picture is not as stark as it is being made out to be. The focus should be on the number of units released annually, he said.

"Land for villas is horrendously exorbitant, plot sizes are too small and couples with money to spend are opting for lifestyle developments. Luxury apartments are in demand and have fuelled the development of large projects," Mr Salt added

"The foreign market in Malta is grossly under-promoted overseas. In the Nineties, figures just topped 1,000. The introduction of the 17 per cent stamp duty put a stop to that. Malta has lost its position on the international property market map when local agents stopped overseas promotion, while competing destinations on the other hand spend millions on international campaigns. Locally, developers with large scale projects will need to do the same."

Adrian Said quoted the World Economic Forum, saying that the number of UK households owning a second property abroad has almost trebled, from 102,000 in 1995 to 300,000 in 2006. The most popular reason for buying a property overseas is investment. In addition, more than 198,000 UK citizens moved abroad last year, with 5.5 million now living abroad.

Top ten ranking destinations last year were France, Spain, Portugal, Italy, the US, Bulgaria, Australia, South Africa, Cyprus and the UAE.

"To achieve a leap in its economic performance in the short to medium term, Malta must learn to attract high-spending tourists, reduce red tape and other avoidable costs to sustain and improve scope for business, attract a new wave of foreign direct investment centred around high value-adding activities, such as R&D, develop into a services centre for business in the Mediterranean, and revise rental laws for foreigners buying in Malta," Mr Said said.

National branding and environment aesthetics were also issues which needed to be fine-tuned and polished, he added.

Karl Montfort said the real estate market was a differential product, which when we attempt to assess, we tend to group all kinds of property into one section, thus missing out on the individual property.

"Demand has not increased as much as supply. However, available information is limited," he said.

Comments from the floor included, among others: "There is a shortage of statistics"; "Yes, we have been producing a lot, but isn't it also true that we are not working on real estate as an exportable product?"; "Are we building an oasis in the desert?"; "Are our prices competitive with other countries?"; "Undoubtedly, it's quality which sells"; "We have to get this branding right!"; "Inflation is high, property prices are going up, rent regulations need to be revised"; "We are thriving on chaos"; and "Malta can become a better Dubai".

The issue of financing our real estate market was also addressed in great detail by representatives of three banks: BoV, HSBC and BAWAG. However, bank financing has not been the only financing source. Developers have accessed the market through the Malta Stock Exchange by listing bonds that have raised funds for mega projects.

"What is also relevant for financial sustainability of this sector is an insurance cover. This is a fundamental issue that will guarantee the sustainability of development in the real estate sector," John Grech stressed.

Godfrey Swain said total home loans on the market amounted to Lm780 million and that 54 per cent of HSBC's log book was taken up by home loans. "One main criterion for this is the fact that HSBC is a very prudent bank", Mr Swain said.

"A good sign is that people are putting in more money into their loans and are not behind in their loan repayments. Around 98.4 per cent of our entire book of business is in order."

John Soler, of BoV, spoke about the economic importance of the real estate sector, the bank's involvement and contribution towards this sector, the development of the home loans market, its sustained growth, its contribution of approximately 14 per cent towards the country's GDP, the significant multiplier effect of construction and quarrying, and the total employment in this sector, which marks an upward trend.

"We must continue to carefully analyse each request for customers to make the right choices and be extremely careful not to push first-time buyers out of the property market."

From a BAWAG perspective, Francis Vassallo said he believed the construction industry remains an important motor behind the Maltese economy. He said there was an increase in the number of loans, an increase in demand for property, location and quality.

Property prices could be seen as being overheated, but is this applicable to all projects?

BAWAG Malta Bank Ltd, a commercial bank, came to Malta about five years ago and has actively participated in many real estate projects, including two of the largest in Malta. It has recently extended its expertise in real estate financing also to Libya.

Mr Vassallo said we need to compare current valuations of Malta's real estate market to those of 10 years ago. Projects today are much bigger in volume and amount. The cost of land alone is much higher than before. Projects now do not just comprise four floors and a penthouse, but 16 floors and more.

Financing therefore needs to be different from the past, and the size of projects are not longer for one bank to finance. Creative financing could include syndicated loans, securitisation, bonds, preference shares and forfaiting.

In terms of urban development, has planning gone out of control? Has the Malta Environment and Planning Authority (MEPA) dampened development? How far should we go with high-rise buildings in Malta? Are they destroying or reshaping Malta's skyline?

Is-suq isuq (it's the market that dictates!), said Angelo Xuereb. "The time has come for the local market to accept asset valuators, either as private companies or as institutions, having architects, lawyers, engineers and real estate agents who can prepare a comprehensive assessment report on the proper value of the property."

Property prices are on the increase, mostly because of a 'freeze' on the building zones in the past, thereby encourging developers to drop existing properties and construct higher buildings with more dwellings, he added.

"Such properties are more expensive to purchase. Furthermore, there has also been an increase in taxes as well as delays in the issuing of permits, thereby creating a greater risk to the developer which gets factored into the overall development costs.

"The number of properties being sold at the moment is more than that of 'new' property buyers entering the market, meaning that 'old' dwellings are being vacated in favour of apartments. Old town houses have their problems, as they do not enjoy adequate facilities for today's needs. Thus, there is often inadequate car parking, outdated electrical and mechanical systems, uncontrollable humidity and very high ceilings presenting heating and cooling problems.

"All this means high costs to maintain the building. The time has therefore arrived to encourage the use of vacated/unoccupied property through incentives, such as the revision of the 1939 rent laws."

Silvio Farrugia said MEPA has no economic or political remit. Its actions affect the economy and politics but these elements are not part of the process in which applications are assessed. Only land use planning is. MEPA thus asks: Does Malta need high-rise buildings?

"The designs being submitted for high-rise buildings in Malta, are, to be polite, mediocre. The emphasis is on land exploitation rather than beauty and uniqueness of design. This is partly understandable, considering land is so dear, an investor would seek to maximise profit. MEPA is helpless before this issue, as it can only assess applications from a land use point of view."

Mr Farrugia went on to talk about architecture and the process of architectural training, which sadly seems to be ignoring the value of a grounding in traditional techniques. "The time has come for a rehabilitation of these techniques in the quest for a more complete, organic and ultimately more sustainable architecture."

Chris Grech challenged MEPA's policies by talking about its human resources, overseeing works in progress, and the implementation of enforcement. We need to find a balance between visual, environmental impact and the opportunities of high-rise development, he said.

Laurence Grech quoted a public opinion survey, carried out by The Sunday Times, appearing on February 25, which interestingly showed that 82.3% of respondents agree that the construction industry is the motor of the Maltese economy, with a further 4.3% agreeing strongly and only 1.3% disagreeing.

Apart from new construction, another potential source of supply are the tens of thousands of vacant premises, which are technically not on the market but could well be in different circumstances.

Opposition to demolition of hotels in picturesque areas to be replaced by apartment locks was even higher: 71.3% against 25.7% who agreed with such demolition. An overwhelming majority of respondents (72.3%) agree with the concept of high-rise buildings; only 27.7% disagree.

However, only 55.3% of those who said they favoured high-rise buildings said they are prepared to live in them; 44.7% said they wouldn't. Those who would most like to live in high-rises are among the youngest age group, 16-25 (61.8%).

Mr Grech said the 1939 rent laws are a distortion of the property market, an obstacle to the full utilisation of land and property resources, a brake on the liberalisation of the rental market and on the stabilisation of property prices.

"They are also a continued, grave injustice to hundreds of old property owners who continue to subsidise, over and above the taxes they pay like all other citizens, rental accommodation to the tune of hundreds of thousands of liri a year."

Investing in the property market overseas was also discussed. While Malta is attracting foreign investment in the real estate sector, the Maltese themselves are investing in property overseas. There are currently a number of projects being undertaken by Maltese, ranging from France to Italy, Croatia, Bulgaria, Slovakia, Romania, as well as Libya, among others.

Peter Perotti spoke about property funds, the purchase of a property, or properties, by a group of investors who pool their funds to complete the acquisition. He said listed and unlisted funds are an alternative to more traditional investments, such as equities, bonds or cash.

Julius Nehorai, who sold an excess of $100 million of apartments and villas in Cyprus, Portugal and the Caribbean over the last eight years, said the fundamental question before taking on a new project is: Would I be prepared to buy there? His criteria for investing are a well-established local developer behind a project, who has both deep pockets and a good reputation; a warm year-round climate in an economically and politically stable country; a good local infrastructure to support tourism (regular flights from major international airports, good restaurants and other amenities, such as golf, amusement parks, health spas, hotels, beaches); the project must have additional features to support real estate, such as a hotel, golf course, spa, beach and tennis courts, to attract tourist rentals; and a benign tax regime without penal rates of capital gains tax and complicated inheritance tax rules.

"Today, the world is becoming a village. People buy second homes because travel is easy, cost of living is usually lower and technology has shrunk our world. Like I do, people can live in the sunshine, in a taxation-friendly country, and carry on with their business overseas," Mr Nehorai said.

"Low-cost airlines and the Internet have put most of the world within easy reach. It is time to re-evaluate our market place. It is no longer within our own environment. Today's savvy real estate investor needs to take a world view."

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