Demand for property to rise
In spite of a dramatic increase in the number of vacant properties, there remains consensus among estate agents and developers on the robustness of the local property market. Malcolm Naudi obtained reactions to the latest census
Mr Salt was giving his reactions to the publication by the NSO last month of the second volume of the Census of Population and Housing 2005 on Dwellings, which revealed that there were over 53,000 vacant properties. Since then, around 20,000 more permits for new properties have been issued by the Malta Environment and Planning Authority.
The figures published refer to a situation two years ago, he pointed out. "These past two years have been among the best in real estate, so we see no reason for concern. On the contrary we anticipate an increase in demand for housing as Malta continues in its quantum leap from a manufacturing to a service industry."
Services, especially IT and ICTs, bring over a certain amount of "foreign" workers all needing housing, he added. The letting market to foreigners has grown substantially.
"With projects like SmartCity, this is set to grow further. Foreign workers will either buy or rent, to say nothing of people coming over to Malta for tax reasons - a market we need to exploit more."
Mr Salt is also anticipating high demand for good quality office space. "This varies from 100m2 on average for international trading companies who need to have a Malta office to 3,000-4,000m2 for large companies, either IT companies who are expanding or new companies setting up in Malta."
Currently, low rental returns, coupled with 35 per cent tax, with only a 20 per cent allowance for expenses, are not an incentive to go to the hassle of renting a property out, he pointed out.
"The final withholding tax of 12 per cent is too high on sales and is leading to people holding on to their property until the tax on profit works out less," Mr Salt said. With an election looming it came as no surprise that political capital was being made out of any subject, including property, most of which is ill researched and made by people who know nothing of the industry.
"Trends are towards lifestyle complexes with pools, grounds and services; one-bedroom properties are in demand by people wishing to leave home - a new trend for traditional family-oriented Malta. There is also increased demand by separated couples for rental properties."
Mr Salt sees great potential in attracting foreigners but much more marketing needs to be done, which agents cannot afford on their own.
"Developers and government, which nets so much in taxes from property, need to invest in overseas promotions too. In short Malta needs to be put on the map." Turning to vacant property, he said a lot of it is tied up in inheritance disputes.
"A method of resolving these needs to be found, perhaps a mechanism making it easier for a majority decision to sell," he said.
"Many investment properties or properties bought for eventual use by children will remain vacant unless the final withholding tax of 12 per cent proposed by the Federation of Estate Agents is accepted by government.
Architect Alfred Briffa said the figure of 53,000 unoccupied properties did not reflect the true picture because many of the properties are not habitable, either because of the way they are built with interlinking rooms or because they may be damp.
There was no demand for these types of properties in village cores, where the faÃ§ade had to be retained and individual tenements, sometimes rented, blocked the development of a larger site.
Some localities, like Paola and Floriana, had aging populations where young people would not want to move in, even if they had a choice and could build an extra floor to enlarge these small properties.
There is also a problem with new properties. Many of those now involved in the property market earn their primary livelihood from outside the business and simply invested surplus cash from these other businesses as a form of investment, as happens in other countries worldwide.
"These investors would be prepared to overlook the type of development and its intrinsic design, so long as it could accommodate a certain number of properties.
"This may have been profitable for the two or three years when property prices were increasing but I fear that we have created a property bubble, with people investing in property the way they invested in the local stock market during the boom," Mr Briffa said.
"We have to engineer a soft landing."
He recommended taking liquidity out of the market, not just through the interest rate mechanism, which will be removed from next year, but, possibly, by introducing a form of ground rent, representing, say, 10 per cent of the capital cost.
This, he said, would enable the developer to capitalise this element of the cost of the property at a low fixed rate of tax of around 8 per cent while government will give the first time buyer a tax credit on this ground rent for the first three years as part of an incentive to new home owners.
Mr Briffa also had a word of warning against those who produce and sell building materials and who are prepared to barter these materials for property. Developers who enter this type of agreement with suppliers are encouraged to build a bigger property - but the bartered property usually remains on the market and may itself have to be bartered.
This increases the number of vacant properties on the market and could create a domino effect if there is a property slowdown.
Two developers disagreed that the local property market could potentially implode. Edmund Gatt Baldacchino, chairman of Pender Ville Ltd, the consortium that is building the Pendergardens development in St Julian's, said: "Properties that are well built and designed, located in desirable areas and put up for sale at the market price have always sold well."
Ben Muscat, CEO, MIDI plc, said: "I believe that our project addresses a particular market sector which does not suffer from the oversupply that these figures (for vacant properties) propose. With respect to future roll-outs of property in our project, we are looking at an average of 45 residential units per annum at TignÃ© Point of a particular quality and appeal, very different from the vast majority of those referred to in the survey."
Mr Gatt Baldacchino echoed this sentiment: "Developments like ours, where one invests not only in bricks and mortar but also in a lifestyle, have become very sought after by both locals and non Maltese alike." And Mr Muscat said: "The build-up of residential stock in a particular market segment has been evident for some time, partially I presume in response to a perceived demand for a particularly sized/priced product".
The property market, he observed, will not implode. "We have now been reading and listening to these theories repeatedly for a number of years. The property market, like any market, is cyclical. "Looking back over a long number of years it would not be the first time that the local property market in general has paused but ultimately trends are not necessarily the same throughout all the market sectors. "Rather than making general statements, more would be gained if there were a greater focus on specific aspects of the property market in terms of possible oversupply and pricing trends."
Pendergardens has also got off to a good start: "The successful launch of our first phase augurs well for the next phases of Pendergardens. We are also noting much interest in the Towers, which will be launched in the short term. Therefore we cannot agree that the property market is about to implode".