Property prices in the first quarter are down by 15 to 20 per cent compared with the same period last year, according to a preliminary report by the Chamber for Commerce, Enterprise and Industry seen by The Sunday Times.
However, there are also indications that the downward trend is "probably being reversed" as confidence slowly returns to an industry that is one of the major contributors to the economy.
The report was compiled by the chamber's director general Kevin Borg, following a review among members in the Real Estate Business Section and of the Federation of Building Contractors (FOBC). Some its contents were published in the chamber's monthly publication, The Commercial Courier, last Thursday.
According to Central Bank index, the price of advertised residential property declined by 2.7 per cent during 2008 but the FOBC believes this figure is underestimated because prices are being slashed further during the negotiations stage.
The FOBC believes that, in general, property prices fell by around 15 per cent in 2008 (compared with 2007) and by around 15 to 20 per cent in the first quarter of this year.
Tax revenues from property sales in January and February declined by 31 per cent while the number of Promise of Sale Agreements signed during the first quarter of this year declined by 6.7 per cent, compared with last year.
The FOBC confirmed that orders are down drastically and profit margins have been squeezed to a minimum.
The slowdown in the sector, together with the fall in price, is attributable to a number of facts, according to Mr Borg.
Despite its size, Malta clearly has an oversupply of real estate. The latest census in 2005 exposed 53,000 vacant properties, but since then thousands of others have come onto the market. Many have remained unoccupied.
Owners of large houses were encouraged by high prices to develop their properties into apartments for a profit, but various operators who took part in the chamber's exercise said that the oversupply related mainly to 'substandard' tiny apartments.
Property development also boomed as a result of government amnesties enticing the public to bring back their foreign investments. Buoyed by relatively low interest rates, they converted houses into tiny apartments not realising that the property bubble was about to burst.
"Real estate agents do not regard this stock of substandard properties as sellable - certainly not at the demanded price," Mr Borg said.
Although the market appears to be holding out in general and there is no particular rush to sell, owners of these so-termed 'substandard' properties will need to cut their losses and try to improve them to meet the standards demanded by the market.
Mr Borg said that contrary to public perception, the slowdown in the market was not caused by the international recession, which only marginally contributed to the existing over-supply situation due to a drop in foreign demand (especially British) for local properties. Some estate agent companies have meanwhile diversified their marketing efforts towards Scandinavia with reasonable success.
"Following a decade of rapid escalation, the pressure in prices was bound to cool off at some stage. This time round, what brought it about was an over-supply situation as investors - both new and established - rushed to the market," Mr Borg said.
But while construction operators reported increasing difficulties in their activities, including shortage of demand and cash-flow since the start of the year, there seems to be light at the end of the tunnel for the real estate sector. Mr Borg said that preliminary figures show that the sharp drop in confidence and price expectation reported between November and January has started to reverse.
Given the clear oversupply situation in real estate and low investor confidence, developers, building contractors and other stakeholders should be encouraged to shift their effort and resources towards other forms of long-term projects with clear and tangible benefits to the private sector and society alike, Mr Borg said.
"We need to learn from mistakes and the authorities need to vet the applications properly to help a volatile market," Mr Borg said.
In fact, the chamber is recommending that new permits for seemingly substandard developments be scrutinised thoroughly by the authorities to ensure adequate housing facilities. After ensuring that unsold poor quality properties are altered to acceptable standards, the chamber is suggesting that the government should enter into agreements with the private sector to utilise vacant buildings for social housing purposes.
The chamber is also recommending a review in the conditions surrounding the status of 'special designated areas' and a fine-tuning of capital gains tax.
Mr Borg said: "Above-all, short-term business and economic objectives should not come at the expense of environmental concerns.
"This will ensure a healthy balance between present and longer-term prospects for the sector and the Maltese environment in general."
In the coming days, the chamber will be releasing the full data emerging from its perceptions and expectations surveys, which it conducts in conjunction with PricewaterhouseCoopers.