Herman Grech
Property prices down 15 to 20% - Chamber
'We need to learn from mistakes'
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.
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Dominic Vella
Jun 22nd 2009, 12:20
J. Abdilla - Malta has sustained a relatively huge proportion of empty properties for several reasons;
1. Inheritance split means many properties are now owned by 10+ cousins who can't agree to sell
2. No council tax or property tax means there is no cost to hold empty unproductive property
3. Legacy of historical governmental contempt of landlords in favour of sitting tenants means people still do not trust the new laws giving landlords more rights and prefer an empty property.
4. Tradition of barter. Big private conglomerates are still paid and settle themselves using property. e.g. a development company may pay the construction firm in flats in the new development. The contruction firm owner may then pay a supplier to its hotel (in another company) in flats. None of this property ever goes to market.
5. Perceived store of value. Historically those who own property (and don't rent it) have been safer from the whims of government than - say - owning shares in the National Bank of Malta.
6. Amnesty for bringing back undeclared overseas assets went straight into property.
Cedric.D.Forth
Jun 21st 2009, 23:19
@S.Elliot- well squire if Mr.Hayes doesn't take your good advice then i will, how is that! you seem to know about Spain whats the situation there then, is it better then Malta or what?
Hasta la Vista Ombre see i'm speaking Spanish already . Cedrico Dio Forthe'
I. Reel
Jun 21st 2009, 22:59
From a nationalistic standpoint I know no Maltese youth of today that can actual afford thier own property in their own homeland at current interest rates and prices. Which, to me, signals a sell off by the real estate market purveyors to the foreign Investor. However, on the other hand I know no Maltese youth who actually needs to buy a property based on a lucrative inheritances from prior family ownership. (family disputes withheld)
What i do know, and the tragedy is that these vacant properties are an absolute eye sore to what is the in my opinion the cradle of European civilization. So much is being lost in Malta's transition to richness and greatness. The solution-any family holding plus 2 properties should need to pay a tax for upkeep and cultural appreciation unless in a high state of upkeep. If a job site is started it needs to be done and finished in prescribed time or face penalties. That way we protect the culture of no tax and penalize the culture of withholding wealth creation and investment based in greed. 50,000 + vacant properties please. What a disgrace to an otherwise jewel of a country.
Antonio Anastasi
Jun 21st 2009, 22:49
Steve Elliot
Wilfred Hayes is entitled to his opinion, EVEN though he is quite right about, concrete jungles and our having to get our act together.
Having grown up and am a regular visitor to Gozo I can honestly say that it is far from the jewel it was and that the rampant development there has caused this once splendid island to lose much of its beauty.
As far as Malta and jewels is concerned just read on the local papers on the constant encroachment of development on our countryside or cultural heritage.
As for the "exclusive jewels in the middle of the Mediterranean" we may wish or think we are but unfortunately we are no such thing, as the few countries I have visited, fill me with envy at how they manage to protect their heritage.
By the way. I AM Maltese so kindly do not ask me to go to Spain or some other place, as I am doing my best here, together with many hundreds of others in Malta to support those NGOs that are fighting these many abuses.
Antonio Anastasi
Jun 21st 2009, 21:08
True about the concrete jungle. Lots of ugly development going on. New developments have been built around Sliema keeping our architectural culture alive.
Maybe the time has come to introduce a property tax, at least on empty property to encourage property owners, to sell on or rent out.
To the person that asked what percentage the 53,000 empty properties are of the total building stock its 33% or so it was reported a few weeks back.
Steve Elliott, UK
Jun 21st 2009, 20:04
Wilfred Hayes ,why don't you go visit Spain, BUY A PROPRTY THERE LIKE MANY BRITS DO. Then get it bulldozed because of a lack of legal work, or no planning permission or because the local mayor was not bribed enough.As a so called regular visitor to the islands you should no that Malta and Gozo especially are without any doubt exclusive jewels in the middle of the med. Stick to your overpriced, under valued ex council property in the middle of a 60 million + population. NOB !!
C Cassar
Jun 21st 2009, 16:56
@ Wilfred Hayes, well we would be very happy for you to stay in the UK which has the biggest litter/recycling problem in the whole of Europe:
http://www.timesonline.co.uk/tol/news/environment/article6512315.ece
If people read the article properly, the drop in property prices is related to those that have been converted in a poor quality way. Prperties of quality, such as new build on the coast with quality fixtures and fittings will always sell very well. I'm actually looking at buying my second property in Malta and in the particular place I'm looking, whilst prices haven't gone up over the last year they certainly haven't gone down - and they are shifting within a few weeks.
The low quality, small and cheap conversions need to be discounted from the equation (as the article suggests) since many properties are now bought by foreign buyers and they invariably look for quality. The EU has many countries in the Eurozone where currency fluctuations (as with the £) have no effect. Just because the British have a very weak currency and significantly weak property market doesn't mean those with the Euro really care about that. The UK's relevance on the Maltese economy is now insignificant.
Cedric D.Forth
Jun 21st 2009, 16:46
True Mr.Hayes nobody in his right mnd will invest in a property on the island and worse still in Gozo. please don't misunderstand me they are beautiful islands the sun-the sea- but inland thats a different story, coming back to investing large sums of British pounds and then, trying to sell up with the aim of making a small profit and taken the money back home,well i can tell you, its blooming murder, no chance, as there are many hidden extras that a foreigner has to forfeit before taken the money out the country, i know i've been there and am still trying to sell our place 4 years down the line.. Got no Chance in Hell. so beware i say and think not twice but three times cause once deeds are signed sealed and delivered thats the end of it all, as you we know half of the islands are up for sale, as they got more empty properties then churches or people.
Wilfred Hayes
Jun 21st 2009, 16:02
Well we are visitors from the UK i wouldn't even think of buying a property in Malta or worse still in Gozo not even if the prices go down to 0% untill the country learn to pull its socks up and clean up the envirement and stop all this concrete jungle, Just an honest opinion from an old humble regular visitor.
Alex P Galea
Jun 21st 2009, 15:57
Ah! No longer the state of denial about the residential property market in Malta. Not that anybody with any sense of reality could not have seen it coming. As long as two years ago I wrote in the linked article below:
“In the short and maybe medium term, the situation in Malta will continue much as today with inflated values until the economic cycle downturns – as it always does eventually – and impacts on the property market, probably dramatically. The worst case scenario would see unemployment impacting on people and buying a house will become the least of their priorities. In that event, it is to be hoped that the Maltese banks will not find themselves overexposed to real estate, as the Japanese banks were in the 1990s.
As large projects bring volumes of new quality units to the market, their company sponsors will have compelling reasons to sell. And they will – with imaginative bank-backed financing inducements, if necessary. That should concern investors holding overpriced inferior property, who will then find out about the stickiness of a highly illiquid asset.”
http://www.independent.com.mt/news.asp?newsitemid=51221
Ray Sultana
Jun 21st 2009, 15:37
The situation was made much worse by changing whole areas previousely reserved for terraced houses to '3 floors+penthouse+semibasement' areas resulting in a lot of low-quality, dark and ugly apartments in the place of attractive town houses. This mess has also resulted in the ghettoisation of smart resisdential areas further reducing the prices of all proporties in those areas.
James De Giorgio
Jun 21st 2009, 13:28
Nah, I think this won't be reversed any time soon. Prices still have some downward road ahead.
J. Abdilla
Jun 21st 2009, 13:22
53,000 vacant proprties according to the 2005 census, and more thousands since then.
Can anyone tell me what percentage of the total housing stock this represents. If this is correct why does'nt property prices fall further till a healthy market is established. After all we know that the true price of anything is what the majority of people are prepared to pay for it.
Peter Bonnici
Jun 21st 2009, 13:17
Always something daft to say Galea L. eh?
Its abundantly clear that you either live in social housing, or paying some ridiculously low rent.
Its either that, or else you really have no idea of how things work, or wish extreme harm to your fellow countrymen.
If property values were to drop by as much as you suggest, hard working, tax-paying families, will be repaying a loan which would be higher than the value of their property. This is what happened in the U.S. (probably never reported on Super ONE therefore there was no way you would ever find out).
Don't you bother to think before you speak? at all?
As for developement being stopped, well it seems that with you, developement stopped a long time ago.
J Galea
Jun 21st 2009, 11:39
With all the vacant properties on the island MEPA should adopt a new direction and only allow like for like renovations and developments. In particular, the continuing changes of the old village cores with the systematic replacement of houses with 4 storey flats should be halted until there is at least an economic rationale for such development (it seems there will never be an architectural or aesthetic rationale). Such a breathing space might enable some reflection on the longer-term issues, e.g., MEPA could have an architectural competition to see how new developments can best approximate old-style buildings and retain character whilst providing modern comfort and minimising energy use etc.. The information gathered from our best architects could be used for guidelines on development in the village cores which are just as sensitive areas as greenfield sites. Unless our country as a whole can get on top of the MEPA brief Malta's tourism product will be ruined. Without this our country's long term economic prospects will be very bleak, which is why Ministers for the economy, tourism, etc. have to be more engaged on the planning issues.
Galea. L
Jun 21st 2009, 11:09
They should be at least 50% down and all development stopped.