Property prices getting more 'realistic'

Fancy buying a three bedroom terraced house with a garage in central Naxxar for just €85,000?

Sounds like a bargain, right? Pity the house was advertised in the property pages this time 10 years ago, at Lm36,500.

Since then its value has more than tripled and reached about €257,000 last year. If you are a buyer, the good news is that property prices, which rocketed in the past decade, have been gradually declining.

A browse through The Times' own classified adverts shows that, right now, the Naxxar house would be advertised for about €244,000.

This declining trend has been highlighted in the Central Bank's quarterly review which shows an ever slowing property market in 2008.

The bank's property price indicator showed an annual decline of 3.2 per cent in advertised prices in the third quarter, following a slump of 0.7 per cent and 2.7 per cent in the previous two quarters of 2008, while data for the fourth quarter reveal a further drop of 4.4 per cent in house prices.

Estate agents are still hopeful. Many property negotiators said they have been noticing this drop in prices but some pointed out that the 4.4 per cent dip was not really significant, adding that reducing €4,000 on a €100,000 property was "barely felt".

One agent actually said he was glad prices were finally settling into "realistic" figures since, in the past years, home owners have been hiking up prices to ridiculous amounts.

"Thank God this price dip is happening. What's actually happening is a correction in people's attitude. People were out-pricing themselves and expecting ridiculously high prices," he said.

But wouldn't property negotiators benefit from high prices, since they translate into higher commissions? One agent argued the contrary, explaining that it was easier and quicker for an agent to sell if the price was reasonable and affordable.

Another agent added that in the past year or two, owners and developers were more willing to reduce their prices to sell. "It's definitely becoming more of a buyers' market," he said.

Veteran property negotiator Frank Salt agreed that prices now are more realistic and that, the current situation is a plus for buyers.

"There will always be those who are desperate to sell but I think most people can afford to wait to sell their property and let it go at a reasonable asking price," he said.

Having said that, he added, right now it is a buyer's market as buyers have a larger selection to choose from within their budget and banks are offering low interest rates.

Mr Salt cautioned buyers not to go beyond their budget and to be aware that a rise in bank interest rates could stretch them beyond their means.

This cautionary note also resonated in the Central Bank's quarterly review that points out that the construction, mortgage and property development sectors accounted for over 50 per cent of total loans issued by local banks last year.

"Recent international experience shows that strong increases in property prices fuelled by rapid growth in credit are unsustainable. House prices cannot rise faster than incomes indefinitely. Otherwise, housing simply becomes unaffordable...

"While domestic banks have been more prudent than banks abroad, however, the continuing high dependence on property as a driver of credit growth, and as collateral for other lending, remains a source of risk," the review warned.

When comparing advertised property prices, the Central Bank's review found that in the third quarter of last year lower prices were noticed in six of the eight property-types. Prices of finished flats, the most common type, dropped by 5.5 per cent from the previous year, though the largest reductions, of 9.6 per cent and 9.1 per cent, respectively, were reported for villas and maisonettes in shell form. Prices rose for maisonettes in finished form and town houses.