Editorial
Surviving the property market blues
The attachment to property ownership is embedded deep in the Maltese psyche in such a way that many are prepared to believe in economic fallacies that everywhere else are discarded as being illogical. One of these fallacies is that property in Malta is a risk free investment and that property prices will never come down.
The GRTU, like some estate agents previously, recently sounded the alarm about the prospects of the property market. They made some recommendations aimed at stimulating demand to avert the risk of a slump in this important sector of our economy. But a real understanding of the difficulties being faced by this industry cannot ignore the supply side of the equation. During the past several years the property industry in Malta has seen massive growth that was unmatched by any other sector of the economy. Banks applied very generous criteria for lending when their vaults were flush with money deposited by their customers and developers found credit readily available at very advantageous terms.
It seems that the managers of our economy saw nothing wrong with this. After all, the property industry has traditionally been one of the most effective motors of our economy. In fact in 2007 "real estate business activities" were the second main contributors to economic growth. But when supply exceeds demand, a shock is bound to affect the market, even if many prefer to live in denial of this basic principle of economics.
Such shocks are usually resolved by price corrections, or to put it more bluntly, a fall in prices. Price volatility is a characteristic of all free markets and there is no reason why the Maltese property market should be an exception.
Developers, and the large subcontracting industry that depends on them, would rather see measures to stimulate more growth, than suffer the pain of price reductions, as many other investors are doing at present in the equity and bond markets. Of course, a property crash is the last thing the Maltese economy needs. Just look at the example of Ireland that is going through a property slump that is dragging the Irish economy into a recession.
But stimulating even more demand can never be a proper solution. Tax incentives to encourage more investment in property is to be discouraged at a time when everyone is being made aware of the need to pay the real cost for the use of energy products and services. Investing in property, like any other investment, carries its risks and these risks should not be underwritten with taxpayer's money.
The case of those buying their first property to start a family is rather different. These people are not primarily investing in property with the aim of making a financial gain. They buy property to enable them to set up a new family unit. The social role of government in this area is not only desirable but mandatory.
But otherwise it is the market that needs to support property prices, and not some artificial measures that will save the pain of those who took the risk of building property in the hope of making good profits, only to cry out for government support when such profits fail to materialise.
Our politicians will no doubt continue with their search for the holy grail of economic diversification. The property industry will always be an important sector of our economic growth. But like other sectors it cannot be given preferential treatment that has to be funded directly, or indirectly, by taxpayers. In the present circumstances, it is far more economically efficient to provide the necessary infrastructure for other relatively new industries to grow and create employment opportunities for our people.
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A J Muscat
Nov 17th 2008, 23:49
Here in Dubai people shared the Maltese illusion that property can only go up in value. Many individuals, not necessarily wealthy to start off with, too out personal loans and credit cards in order to put a deposit on a property in the hope (fuelled of course by the ubiquitous real estate agents) of flipping the property within a short time at a considerable profit. If my memory serves me right this same attitude prevailed amongst many a Maltese real estate investor. The result in Dubai is that some apartments are now down by 50% in just over a month - one can only hope that the inevitable correction in Malta will be less dramatic but it is a question of 'when' rather than 'if'... Measures to stimulate further speculation are just short of economic suicide, the market needs to adjust itself to the natural laws of demand and supply and the obvious direction for prices can only be south in view of the thousands of vacant properties...
d.attard
Nov 17th 2008, 20:39
Government and opposition missed on the most fundamental intitiative needed in present economic circumstances.
Government must ensure that no one will lose his/her home when personal income contracts as a result of the upcoming recession (depression?).
The cost to Government will be small (less than 50m euros). The cost of not guaranteeing will be astronomical.
This measure is crucial balast to a ship dealing with a massive economic tempest. It provides basic confidence in basic maslow needs, and eases price-contraction against price meltdown that will produce significant negative fallout of micro and macro proportions.
If Government will take up this line of action when the rot would have set in, it will be very probabably too late to stave off significant social and financial damage.
Paul Smith
Nov 17th 2008, 20:38
frank portelli i don't understand why you bring up Mark Twain?
What does that have to do with supply and demand?
Simple fact is, there are now over 30,000 empty apartments in Malta and still more are being developed? And there is no demand, unless your having a baby boom in Malta?
Or unless those apartments where build with a mind to house African immigrants?
We also have land problems in the UK, but you can hardly say we have a vibrant property market.
Our problem is slightly different, we didnt over build like Malta and Spain, we just charged to much and lent to much, on the other hand, Malta did both.
MY guess is you are a vested interest in the housing Market
Frank Portelli 2BFRANK
Nov 17th 2008, 18:15
Mark Twain had a different opinion of course when he was asked why he wanted to buy some land
"Buy land, cause they're not making it anymore"
Mark Twain
Dr Frank Portelli
Paul Smith
Nov 17th 2008, 12:03
writing was all over the wall when it came to the property market. Apartments started shooting up like no tomorrow and it seemed that everyone was jumping on the property development ladder, same here in the UK, there was always the excuse in the UK of pent up demand, lack of land, housing shortage. As it stands now, there are 2 million properties for sale on rightmove and prices this year alone have fallen 15 to 17%, we are looking 50% drop from peak to trough and maybe even more. UK banks also gave money to anyone with a pulse, fortunatley this didnt happen in Malta, UK also had the Buy to let landlords buying up property for rental on interest only loans, it was a disater in the making and the UK relied to heavily on property for economic activity.
It now looks like there are more apartments standing empty in Malta than there are new buyers, the only way this madness will be addressed is in a sharp decrease in property prices, How on earth was Malta going to sustain such price rises year on year?
property is somewhere to live, not a speculative chip in a casino