Construction fissure
It will be interesting to see what the National Statistics Office property index will have to say for the full year 2007. The index was constructed on the basis of three types of dwellings: apartments; maisonettes; and terraced houses. It left out...
It will be interesting to see what the National Statistics Office property index will have to say for the full year 2007. The index was constructed on the basis of three types of dwellings: apartments; maisonettes; and terraced houses. It left out semi-detached and detached villas and bungalows, few of which are being built nowadays, going by the applications for Malta Environment and Planning Authority permits.
Such applications have dropped drastically in recent years. Nowadays the building focus is on apartments and, to a much lesser extent, maisonettes. That reflects a higher density in the use of land, exemplified by old houses being knocked down all over the island to be converted into apartments.
This is not being done by established developers alone. The building industry has attracted a lot of investment from members of the professions, in their vast majority self-employed. The established developers tend to go for larger scale developments.
The question is how much more development will take place in the sectors covered by the property index, given the overhang that exists in them. The overhang of finished apartments is massive. The economic oddity is that it continues to grow.
Those who take on small-scale building do so because demand in towns and villages remains considerable. Large-scale developers are still selling, though not all of them to the same extent. In due course, one suspects, data will be released to show that the overhang is growing.
That is not as much of an economic oddity as it is made out to be. Supply exceeds demand by a high margin because of the mismatch between the two sides. Such demand as exists is, in the main, not for the flats built as much as 10 or more years ago and still on the books of developers.
Some of these developers may take heart from the indicated competition between the two big political parties to assist first-time buyers, particularly of property under Lm50,000 in value. There will no doubt be a fresh drive to offload some of the overhang.
The government says that the Housing Authority is already offering schemes, which the Opposition last week said it would undertake when it is in office. Yet there can be little doubt that the Nationalists will intensify promotion of the existing schemes over the coming months in the run-up to the general election.
Thereby demand will be encouraged for units that can be bought and finished for a total of Lm50,000. That could offer developers stuck with unsold units to offload some of them, since Lm50,000 - not an insignificant figure in itself, in particular for lower income groups - will not go a long way up the building scale.
If such a surge in demand does develop, therefore, it is unlikely to push up the supply price at that level. One should assume that the government as well as the lending banks would advise potential buyers to weigh carefully before agreeing to requested prices.
If the surge does come about, therefore, it should not push up the property index.
This correspondent's interest in what the index will say for the year 2007 as a whole is roused by strong anecdotal evidence that supply prices are falling. Developers who turned up their nose in disdain when a few thousand were knocked off their asking price are now surreptitiously or openly letting it be known that they are ready to negotiate. That is happening in the context of further anecdotal evidence that the lending banks are tightening up on their funding, as well as suggesting to borrowers with property in the overhang that they do their utmost to move it.
This is not happening as a result of the credit shock originating in the US with sub-prime mortgages and predictable performance failures therein. No economy is an island but, in this regard, Malta's financial market had started its correction well before the sub-prime trigger was pulled in the US to set off a blast that rocked much of the rest of the world.
The Maltese property market is not reflected on the Malta Stock Exchange. Neither is it affected by the American sub-prime shock waves. It has a life and maladies of its own. That life has been good; people who have invested in property have made a lot of money as the value of land soared. Now they are on the brink of new times.
These will not be so urbane about the property overhang, certainly not in the context of tighter credit by the banks. Prime sites will continue to be developed. But the rise in property prices is either over or, in those segments that will still attract demand, will take place at a much slower pace.
The property index for the whole of this year could have a grim story to tell, going by the fissures already being detected in Malta's foremost boom area.
Such applications have dropped drastically in recent years. Nowadays the building focus is on apartments and, to a much lesser extent, maisonettes. That reflects a higher density in the use of land, exemplified by old houses being knocked down all over the island to be converted into apartments.
This is not being done by established developers alone. The building industry has attracted a lot of investment from members of the professions, in their vast majority self-employed. The established developers tend to go for larger scale developments.
The question is how much more development will take place in the sectors covered by the property index, given the overhang that exists in them. The overhang of finished apartments is massive. The economic oddity is that it continues to grow.
Those who take on small-scale building do so because demand in towns and villages remains considerable. Large-scale developers are still selling, though not all of them to the same extent. In due course, one suspects, data will be released to show that the overhang is growing.
That is not as much of an economic oddity as it is made out to be. Supply exceeds demand by a high margin because of the mismatch between the two sides. Such demand as exists is, in the main, not for the flats built as much as 10 or more years ago and still on the books of developers.
Some of these developers may take heart from the indicated competition between the two big political parties to assist first-time buyers, particularly of property under Lm50,000 in value. There will no doubt be a fresh drive to offload some of the overhang.
The government says that the Housing Authority is already offering schemes, which the Opposition last week said it would undertake when it is in office. Yet there can be little doubt that the Nationalists will intensify promotion of the existing schemes over the coming months in the run-up to the general election.
Thereby demand will be encouraged for units that can be bought and finished for a total of Lm50,000. That could offer developers stuck with unsold units to offload some of them, since Lm50,000 - not an insignificant figure in itself, in particular for lower income groups - will not go a long way up the building scale.
If such a surge in demand does develop, therefore, it is unlikely to push up the supply price at that level. One should assume that the government as well as the lending banks would advise potential buyers to weigh carefully before agreeing to requested prices.
If the surge does come about, therefore, it should not push up the property index.
This correspondent's interest in what the index will say for the year 2007 as a whole is roused by strong anecdotal evidence that supply prices are falling. Developers who turned up their nose in disdain when a few thousand were knocked off their asking price are now surreptitiously or openly letting it be known that they are ready to negotiate. That is happening in the context of further anecdotal evidence that the lending banks are tightening up on their funding, as well as suggesting to borrowers with property in the overhang that they do their utmost to move it.
This is not happening as a result of the credit shock originating in the US with sub-prime mortgages and predictable performance failures therein. No economy is an island but, in this regard, Malta's financial market had started its correction well before the sub-prime trigger was pulled in the US to set off a blast that rocked much of the rest of the world.
The Maltese property market is not reflected on the Malta Stock Exchange. Neither is it affected by the American sub-prime shock waves. It has a life and maladies of its own. That life has been good; people who have invested in property have made a lot of money as the value of land soared. Now they are on the brink of new times.
These will not be so urbane about the property overhang, certainly not in the context of tighter credit by the banks. Prime sites will continue to be developed. But the rise in property prices is either over or, in those segments that will still attract demand, will take place at a much slower pace.
The property index for the whole of this year could have a grim story to tell, going by the fissures already being detected in Malta's foremost boom area.