Building ground

Joe Lupi, the managing director of Frank Salt Real Estate, is convinced that the property market is not doing as badly as some people are saying. He spoke to The Times Business about what could be done to make it better all round.

Real estate agents are interested in whether people buy and sell. What about the environmental and economic impact of excess supply?
The property market is like any other, rising and falling in price depending on demand and supply, similar to stocks on a stock exchange. The difference in Malta is that as a small island anything that happens can affect it.

For example, the general elections slowed down the market. When the government issues social housing for first time buyers, it too slows down the market until the beneficiaries have been identified.

On the other hand, the repatriation of funds to Malta and their registration resulted in excessive liquidity that people wanted to invest. Much of that money found its way into large property projects...

Prices are also affected when you have a lot of people buying in a particular area. When vendors see properties being grabbed by speculators, they put up their prices.

The problem is that actual demand in terms of places to live or work has not changed as much as expectations have of capital appreciation.
The market is made up of different buyers. The Maltese like to invest in property...

Only because they believe that it will increase in value.
Property prices at realistic levels have never slowed down...

It may never have happened in the past but that does not mean it will never happen...
Prices might drop in countries were there is a lot of land and many properties, as happened in Spain. But there is a limit to how much we can build in Malta. Investors might be happy to leave a property vacant for a while to wait for capital appreciation.

But we already have three times as much as we will ever need... So the idea that land is finite is almost irrelevant.

We always look at supply but not at demand. Demand can be created. For example, there are properties for investment and these have become more attractive because there is real demand for rental properties.

Our figures for rental were three times as high last month as the previous month. People are renting rather than buying, especially foreigners who are coming to Malta, thanks to the growing economy.

Our company has a very strong share of the foreign market. Sales in terms of units are 19 per cent up over last year and the value is 50 per cent up.

We don't realise the potential this island has for attracting foreign investment. We took part in six exhibitions overseas in the first 4 months of this year. But a lot of people do not know about Malta and the advantages that it offers, particularly its attractive residency conditions offered to foreign nationals, including preferrable rates of taxation.

But these people are not looking for first floor maisonettes on a back street in Fgura or Naxxar.
Absolutely. Developers today have thankfully learned - sometimes through consulting us - what really sells. It is useless building hundreds of apartments that are too expensive for the average Maltese first-time buyer, too small for second-time buyers, or in the wrong area for foreigners.

They are realising that they need to build depending on demand. There is a demand for one-bedroom units because youngsters are living on their own, and there are single parents.

When there are developments with more than one type of apartment, the one-bedroom ones are snapped up. Then there are ones aimed at foreigners like Portomaso, Tas-Sellum, St Angelo Mansions and so on which sell in spite of the price.

But what about the already large stock of vacant properties (53,000), whether they are for sale or not? Permits were issued for some 23,000 more since then...
I can assure you that these are not all for sale. With regards to the permits issues, it takes years from when the permit is given the green light, to when the development actually commences and is launched on the market.

So do you think that the developments will go ahead?
I am sure they will, but over a number of years. Even big developments like Pender Gardens and Tigné Point are being sold in phases.

For first-time buyers, the problem is that their - and their parents' - expectations are on the high side. But we have to get used to smaller homes and to starting off modestly and upgrading over your life.

If we come back to the issue of prices, people who do not have a loan to repay tend to come up with a price on the offchance they will find a buyer. They are in no hurry to sell... But developers do not take unnecessary risks. They do their studies and consult architects and real estate agents.

But these are the professional and experienced ones. When there was double digit growth a lot of amateurs decided to go into development. Has that affected the market?
To an extent, yes. These are people who had a house and were given a permit for an extra floor. But they are now realising how many other units there are in the area, far more than there is demand for.

What is strange is that the minimum floor area per apartment means that they cannot build one-bedroom units in an area where there is demand for them!

So we again have a mismatch. The Malta Environment and Planning Authority should address this issue. It is useless having so many three-bedroom units that no one wants or that no one can afford.

Real estate agents knew what was needed, whether one-bedroom apartments, upmarket properties for foreigners or rental accommodation. But you saw all the overdevelopment and no one ever spoke up. Quite the contrary. When other people warned about oversupply, they were always shot down by real estate agents saying no one else understood the property market.
I am still not saying that there is an oversupply in all sectors. Some properties will take longer to sell and will need to be priced realistically.

What's good to keep in mind is to build properties that meet the buyer's needs. Also, one has to create demand by generating more awareness through proper and creative marketing media, particularly when targeting the foreign market.

The government has to firstly appreciate the benefit to our economy that foreign buyers bring with them and then commit itslef to actively promote Malta and Gozo as an ideal location for retirment, holiday or investment.

Unfortunately, we see the contrary being done, with outdated restrictions on rentals, an unfair sales tax of 12 per cent, especially in the case of properties purchased for rentals and holiday purchases, and prolonged procedures and red tape in processing residency applications.

All these deter potential foreign investment coming our way.

So the prices will fall.
No, they will become realistic. If vendors priced their properties at levels over what they were worth, they are now having to revise them but the realistic price will not have changed: The market has not dropped or slumped. It was expectations that were too high.

Last year, you would be surprised to learn how many vendors dropped their prices and accepted offers. A market slowdown, as we saw in the past six months because of the elections, is to some extent not so bad as it helps regulate market demand and reduce prices of overpriced properties.

That is what is happening at the moment.This is why both real estate agencies and banks are introducing offers to boost the local market. It has worked and the market is picking up again fast.

Also, letting is doing extra-ordinarily well and I know of properties that were for sale which have been taken off the market so that they could be rented out. I strongly believe that it is a very good time to buy with the market offering a wide choice of realistically priced properties.

Has this reflected on rental prices? For many years, the argument has been that the return was not enough of an incentive for property owners.
Up to now, rentals have gone up only marginally but I am expecting them to increase. People are seeking to rent upmarket properties, not holiday homes. And of course, more Maltese are now renting. Trends are changing.We are meeting the government to discuss our proposals before the pre-budget document is issued.

One of our recommendations, proposed through the Federation of Estate Agents, is a final withholding tax on rentals as this is a disincentive for property owners, who have to pay for a licence and then tax on the income and commission to the agent. If you are repaying a loan as well, it is definitely not worth it.

Another issue on which agents have long lobbied in the right for foreigners to sub-let...
Unfortunately, when government negotiated with the EU on this point, Malta got many concessions, one being that foreigners would not be allowed to rent unless their business was property rental.

When we asked the government to waive this condition, they said that if they did so, it might re-open other issues that might not be advantageous for the country.

But since then, the federation filed a complaint with the European Ombudsman and he replied that the government can remove this condition if it wishes to - on a unilateral basis.

Another issue with regards to property acquisitions by foreigners is that a lot of the marketing is done by the Malta Tourism Authority, as a spillover of their tourism marketing. There is a synergy as many people who buy property first learn about the island as tourists or potential tourists. But the embassies could play more of a role. We cannot rely on individual agents to market themselves. We have to have a collective approach to market the island.

It does not help that the starting prices tend to be high, which reduces their investment potential. But we do not sell on the basis of price but on the basis of lifestyle.

When selling to foreigners, attractive prices are of course of interest to this market, particularly so due to the investment potential and the hard competition Malta faces. However, one should keep in mind, that when it comes to selling property to foreigners, you are not only selling a home or property, but a lifestyle, something that cannot be easily copied by other countries, regardless of the price.

Of course, as the economy grows more foreigners are coming to work here, the majority of whom want to rent. And the introduction of low-cost flights has made it easier for people to have holiday homes as in the past accessibility - especially cheap accessibility - was a problem.