Wednesday, 13th May 2009
Editorial
When bubbles burst
There are few subjects guaranteed to stir emotions of many Maltese as the one on the future of the property market. The love affair of the Maltese with property ownership is only matched in intensity by the almost dogmatic belief of many that investing in property is practically risk-free, at least in the long term.
Thus, when someone challenges these acts of faith in our property markets, some are taken aback and react by claiming that the dynamics of the property market in Malta are indeed unique. But are they?
Not according to the chief executive of Banif Bank who has signalled that, if something is not done at a national level, we risk seeing the property bubble bursting. Apart from this sober warning, in the recently held property seminar we heard the usual list of platitudes. Some insist that the government needs to do more to help the property sector, while others stated and that good property will always sell well, while bad property prices will crash.
The reality which many choose to ignore is that the property market is affected by supply and demand. When supply outstrips demand, prices are bound to fall. This is what is happening in the Maltese property market at present.
Is this a bad thing? Not necessarily, especially if this phenomenon helps many to put their foot on the property ladder for the first time. When property becomes more affordable because prices come down, developers may forgo some of the profits they thought they would make, while others will become happy, if indebted, homeowners when before they could only dream of owning their home.
The quality of the houses we build is also a factor that is affecting the property market. Ultimately, everything sells because the price paid for anything reflects the perception that buyers have about the value of the thing they are about to buy. Some would never afford to become property owners unless there were properties at the lower end of the market available at prices that are affordable to the less affluent.
What is really worrying is the symbiosis that exists between the property market, the natural environment and the tourism industry. By continuing to increase the supply of residential properties in our small overbuilt island, we are inevitably damaging the natural environment. When we do this, we increasingly scare away potential visitors who many consider are the best hope for the revival or the property industry.
The property industry will always remain one of the main motors of the Maltese economy. However, what is more important is the understanding that our insatiable desire to build more houses is affecting the prospects of tourism.
Government intervention should not be in the form of assistance to property developers through fiscal concessions, marketing campaigns or joint ventures with the private sector, as suggested by some. It should rather be in the form of better development planning that is increasingly aimed at protecting the fragile natural environment.
We are risking killing the goose that lays the golden eggs. The metaphorical golden eggs of course are the enormous benefits that tourism generates. The goose is our potentially lovely natural environment.
The arguments in favour or against investing in the property market are not different from those of investing in any other market. Risk and reward are closely correlated in most investments. When bubbles burst they prove that those who take big risks can sometimes suffer great losses.
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The new economy should be built around securing Malta's energy future, wind farms, household energy efficiency companies, food security using the latest hydroponic technology making sure Malta can feed itself. Building bike lanes, creating more open spaces, moving away soley from tourism and apartment building for tourists whom are too broke to come now and purchase apartments. Moving away from an oil fueled transport system.
This must be done - or the kids will curse you all in 10 years time otherwise
The editorial does well, tourism is most at risk. Let us not kid ourselves the World economy is traumatised. Global equity markets are down 50%. Huge Investment funds have collapsed (Ponzi/Hedge). The world investor (tourist) has been pummelled.
It is old news, the US sub-prime mortgage crisis brought this about. Unfortunately there are many who feel that this is phase 1.
After last Friday's NFP, US unemployment stood at an incredible 8.9% (539k lost for the month even after government hired 60k temps). Not surprisingly there are two worrying aspects looming.
Plummeting property prices will result in massive defaults in the mid-range mortgage market. Not only from the unemployed but also those who refuse to pay rates for a property no longer worth its value.
For the same reasons, the second aspect involves the collapse of some major Credit Card companies.
At present, it would truly be ill-advised for anyone to imagine that this is buyers’ market.
You are absolutley correct. Sliema has been ruined. I could never understand why property was so expensive in Sliema or how it obtained the snob factor?
It's dirty, litter blows up the long dark streets - streets being dark due to the high rise monsters that have been built and when you go out onto your sliema back balconey you see another high rise. Parking is impossible, to say it is over crowded is an understatment, it's noisey, car exhaust fumes blow into your apartment on hot summer night and days, i would not even dream of bringing children up in the area its akin to briging children up in central London. many of the residents like to espouse the myth of wealth when they are probably up to there eye balls in debt just keeping up appreances. Whom ever let this mess occur?
Houses are for living in, not tools to enrich people
New(er) homes will always sell first and for better prices since usually they are better equipped with modern amenities, therefore those hanging on to vacant properties with the hope of fetching higher prices may very well be shooting themselves in the foot since no one in this day and age will bother renting or buying substandard properties. Homes built pre-wartime and immediately afterwards lack adequate floor plans, modern plumbing and quite often have defective wiring.
Owners of such properties are better off to sell them for land value than hang on to them only to ultimately find that their wait cost them money and possibly be taxed for keeping them vacant.
Until a few months ago, they wanted the government to stay away and have the freedom to build and destroy as they pleased... and indeed destroy they did. Malta has become a concrete mess thanks to the greed of the speculators and with the blessing of the government and Mepa.
How about saving Malta and the little that's left of the environment instead of the speculators? Maybe then we would see an improvement in tourism figures, a renewed interest in Malta by foreigners and ultimately an improvement in the quality of life.
The first question is when will it burst?
The second question is by how much?
In my opinion property prices should settle to circa the 1999 level .(ie :A flat will start selling for app LM25,000 as compared to LM60,000 and this will be in the very near future)
This is exactly what we NGOs have been saying.While we realise that"The property industry will always remain one of the main motors of the Maltese economy"without good development planning the players in this important field will simply kill each other off.
Unfortunately good development planning is exactly what MEPA's masters have been resisting for the last two decades.Dragging their feet on the Local Plans for13 years left a convenient void where unacceptable developments were allowed,resulting in a ruinous free-for all.This was compounded by raising the building heights which has destroyed even our precious village cores which tourists are so enamoured of.
MEPA's outright refusal to enact regulations related to density of population or saturation of sites is directly responsible for the present mess with no care for traffic and health issues,let alone tourism.To this day, applications which contravene MEPA policies,like Villa Bonici, are still being processed.
The fact that no qualified Planner sits on any of MEPA's boards says it all.
100% right
Unfortunetly in this country we just wake up when its too late and some even stay asleep!
Shouldn't be an envoirment and planning authority somewhere out there called MEPA ?
Many Maltese need to realise that every investment comes with risk and property is no exception. What goes up in price may go down and past performance is not a guarantee of what is going to happen in the future.
High and unaffordable property prices are simply illusary wealth. Apart from a select group of industry players, no one benefits from ever rising house prices. Young buyers are saddled with debt leaving little to spend in other parts of the economy after servicing their mortgages, while precious capital lies idle in unsaleable property when it could have been deployed to better use in other areas of the economy.
Truth is supply of units is far higher than Malta really needs and that will keep downward pressure on prices for some time to come. Construction needs to curtailed as Malta is being damaged irreparably.