Malta 'in time' to stop bursting of property bubble - Banif chief

We need to step up our efforts to make Malta a household name - Tonio Fenech

Malta was still in time to stop the real estate bubble from bursting although property prices started going down in the second half of 2004, Banif Bank chief executive Joaquim Silva Pinto said.

He said the downturn in property prices started even before the financial crisis. The perception that property prices were constantly spiralling upwards was mainly due to speculation.

But despite the economic downturn, banks would continue looking for investment opportunities, including making loans to first-time buyers, he added.

Central Bank figures for last year showed that the average price of property has gone down by an average 2.7 per cent.

However, Finance Minister Tonio Fenech said the local decline was not at the same levels experienced by major destinations like Ireland and Spain, which were suffering unprecedented signs of distress. Local prices of shell flats had gone down by two per cent, finished flats by 5.4 per cent, terraced houses by 1.8 per cent and villas by 3.7 per cent.

But John C. Grech, who chaired a forum on real estate last Friday, said the current economic slowdown was expected to lead to losses for speculators while wise investors would continue seeing a return.

"There is no doubt that bad property will perform worse and fetch lower prices while good property will continue doing well," he said.

Moreover, the economic slowdown should eliminate the inefficient operators, releasing precious resources which could be taken up by stronger operators who would in turn help the economy get stronger.

"We want serious, long-term investors. Speculators will lose money while wise investors will continue making it," he said.

Philip Marley, the chief executive of Ely Property Group, believes that speculative building is going to be phased out. "Unless you can prove the cash-flow of a building, you will struggle to get bank support," he said.

However, integrated and concerted action was needed to forge the way forward for Malta's real estate, a view shared by a number of players in the field.

"Action has to be integrated or else the impact will not be sufficient," Dr Grech said.

"The country needs to coordinate its resources and there is a lot we can do to streamline our efforts to have a good product," he said, adding that there was no point for the government to talk about its vision for 2015 unless everyone took ownership of it.

Labour infrastructure and public works spokesman Charles Buhagiar said the country needed a vision, adding that some of Malta's prime real estate was underdeveloped or underutilised. "We need serious planning and work with the private sector to maximise potential."

Dr Grech said the time had also come to rethink the idea that the government's place was on the sidelines since the way forward included private-public partnerships.

"The government and the private sector have to work together and understand each other more. It is high time that we engage in open and frank dialogue across the country to get everyone on board," he said.

Dr Fenech highlighted the need to develop a common platform where both the government and the private sector could work together to effectively position Malta as a business and lifestyle destination. He said the better the quality of local real estate, the more interesting Malta became for foreigners who chose the island as their second home and a feasible location to do business.

"We need to step up our efforts to make Malta a household name, particularly in major cities, and as a favourite destination made up of a unique combination of business and lifestyle," he said.

Tourism parliamentary secretary Mario de Marco said foreigners who owned second homes in another country created regular tourism flows and also had different expenditure patterns from other tourists. Last year more than three per cent of tourists coming to Malta used their own properties, spending some €24 million.

But although the acquisition of property by foreigners is an important part of the real estate market, the island might not be offering what is wanted by the high-flying buyer, who in the words of Hans Cauchi, managing director of global concierge service company Quintessentially (Malta), comes on his yacht or private jet and will jet off if he does not like what is on offer.

He said many potential investors felt that local accommodation was not of great standard or well-finished and although there were a few nice properties, not enough had outside green spaces. The country also needed to attract high-end brands to its shores.

"Foreigners look for difference but the apartments all look the same." But when he asked those present whether they shared this view, only two out of some 50 delegates raised their hands.

SmartCity Malta chief executive Claudio Grech said Malta had the inclination to forego quality for the sake of a lower price, leading to mediocrity.

"Quality developments are few and far between in the country and this stands out in a negative way," he said, adding that quality was imperative to attract foreigners.

This prompted Dr Grech to urge the banks to think of design standards when they were looking at financing of projects, in a bid to improve local standards.

The state of the infrastructure, especially roads, came in the line of fire, with Chamber for Small and Medium Enterprises representative Sandro Chetcuti saying he was embarrassed to take potential investors around the island, even though they were driving in a sturdy four-wheel drive vehicle.

"We cannot afford more mistakes. Today we are suffering from the mistakes of the past," he said, adding that government needed to be more entrepreneurial and pro-business.