Wide fluctuations in property prices
A survey carried out on behalf of a leading real estate agent has found wide fluctuations in the increases of property prices for various categories of housing across the island, to the extent that the survey writers warned that the industry is far too...
A survey carried out on behalf of a leading real estate agent has found wide fluctuations in the increases of property prices for various categories of housing across the island, to the extent that the survey writers warned that the industry is far too complex for wide-sweeping statements to be made.
The confidential survey looked at apartments, maisonettes, terraced houses and town houses in 13 areas and found that prices between 2003 and 2006 increased anywhere from 78 per cent (maisonettes in Balzan, Attard and Birkirkara) to a maximum 138 per cent (maisonettes in Zabbar, Zejtun and Marsascala).
Real estate agents have long criticised official statistics released by the Central Bank of Malta, saying that these are based on advertised asking prices, which can be quite different to the eventual selling prices.
The Governor of the Central Bank in an interview given to The Times Business earlier this month said the bank's residential property price index had shown a sharp deceleration in property price inflation, from a peak of almost 20 per cent in 2004 to three per cent in the first quarter of this year.
The survey for the real estate agency was based on prices at konvenju (promise of sale agreement).
"Even these prices have to be taken in context. Until some years ago, the price in the konvenju was probably always deflated so as to reduce stamp duty but there is now much more enforcement to ensure that the contract prices are genuine. This makes it seem that the prices are higher when in fact the actual amount paid would not be much more," sources familiar with the survey said.
The survey, a copy of which was obtained by The Times Business, gives a number of caveats, warning that the data must be carefully analysed for anomalies.
For example, the sale of top-notch apartments in Tigné/Town Square and Portomaso in 2003 inflated the average prices for that year, distorting comparison with 2006 prices.
Another problem is the fact that the market size is relatively small when analysed by location. The survey concludes, for example, that the sale of one large property in Mosta/Naxxar may have distorted the average for 2005, while the sale of cheap properties in Floriana, Valletta and Hamrun may have deflated the 2004 figures for those localities.
The organisers of the survey noted that the prices do not give any indication of the unit size. The trend may be for prices to remain more or less the same - but for smaller properties, a trend which may be more marked in some areas than in others.
As places like Sliema and St Julians became more expensive, people started to look elsewhere, in turn driving up the prices there. This phenomenon was seen in places like Gzira, San Gwann and Msida, and in St Paul's Bay and Mellieha, he said.
What does it all mean? Is property a good investment or not?
The sources said that property should not be seen as a short-term investment - especially because of the high fees associated with the purchase.
"Unfortunately, there are people who have very high expectations and expect double-digit growth every year. Those who know the business have much more realistic expectations of six to seven per cent return on their capital, not including any rental income," the sources said.
"And the same applies to contractors who realistically only work for a 15 per cent margin."
So much for the prices historically. What did he think about the future? Would oversupply result in downward pressure on prices?
"I think you have to agree that prima facie there is an oversupply if construction continues at this rate but you also have to understand that there is nothing else to put money into except property for that sort of return.
"But you must understand that the number of permits being issued does not necessarily translate into that number of units being built. Our research shows that the number actually being built is slowing down. And we also know of cases where a developer sells off the last few units in a block for a much cheaper price as he would already have made his money on the first to be sold."
He also said that the increase in price as a property was re-sold depended greatly on the original price.
"For example, Portomaso apartments were sold at par with the market at the time and this left a margin for increase. Tigné's apartments were sold at the top end of the price band which left less room for speculation. The key in all of this is time: You have to wait for the market to rebound, as I believe it is doing now."
The confidential survey looked at apartments, maisonettes, terraced houses and town houses in 13 areas and found that prices between 2003 and 2006 increased anywhere from 78 per cent (maisonettes in Balzan, Attard and Birkirkara) to a maximum 138 per cent (maisonettes in Zabbar, Zejtun and Marsascala).
Real estate agents have long criticised official statistics released by the Central Bank of Malta, saying that these are based on advertised asking prices, which can be quite different to the eventual selling prices.
The Governor of the Central Bank in an interview given to The Times Business earlier this month said the bank's residential property price index had shown a sharp deceleration in property price inflation, from a peak of almost 20 per cent in 2004 to three per cent in the first quarter of this year.
The survey for the real estate agency was based on prices at konvenju (promise of sale agreement).
"Even these prices have to be taken in context. Until some years ago, the price in the konvenju was probably always deflated so as to reduce stamp duty but there is now much more enforcement to ensure that the contract prices are genuine. This makes it seem that the prices are higher when in fact the actual amount paid would not be much more," sources familiar with the survey said.
The survey, a copy of which was obtained by The Times Business, gives a number of caveats, warning that the data must be carefully analysed for anomalies.
For example, the sale of top-notch apartments in Tigné/Town Square and Portomaso in 2003 inflated the average prices for that year, distorting comparison with 2006 prices.
Another problem is the fact that the market size is relatively small when analysed by location. The survey concludes, for example, that the sale of one large property in Mosta/Naxxar may have distorted the average for 2005, while the sale of cheap properties in Floriana, Valletta and Hamrun may have deflated the 2004 figures for those localities.
The organisers of the survey noted that the prices do not give any indication of the unit size. The trend may be for prices to remain more or less the same - but for smaller properties, a trend which may be more marked in some areas than in others.
As places like Sliema and St Julians became more expensive, people started to look elsewhere, in turn driving up the prices there. This phenomenon was seen in places like Gzira, San Gwann and Msida, and in St Paul's Bay and Mellieha, he said.
What does it all mean? Is property a good investment or not?
The sources said that property should not be seen as a short-term investment - especially because of the high fees associated with the purchase.
"Unfortunately, there are people who have very high expectations and expect double-digit growth every year. Those who know the business have much more realistic expectations of six to seven per cent return on their capital, not including any rental income," the sources said.
"And the same applies to contractors who realistically only work for a 15 per cent margin."
So much for the prices historically. What did he think about the future? Would oversupply result in downward pressure on prices?
"I think you have to agree that prima facie there is an oversupply if construction continues at this rate but you also have to understand that there is nothing else to put money into except property for that sort of return.
"But you must understand that the number of permits being issued does not necessarily translate into that number of units being built. Our research shows that the number actually being built is slowing down. And we also know of cases where a developer sells off the last few units in a block for a much cheaper price as he would already have made his money on the first to be sold."
He also said that the increase in price as a property was re-sold depended greatly on the original price.
"For example, Portomaso apartments were sold at par with the market at the time and this left a margin for increase. Tigné's apartments were sold at the top end of the price band which left less room for speculation. The key in all of this is time: You have to wait for the market to rebound, as I believe it is doing now."