Christian Peregin
Renewed call for property market study
Banks could suffer the consequences of a property downturn. Photo: Matthew Mirabelli
The Central Bank’s warning that banks are facing heightened credit risks due to declining property prices has prompted developers to renew their call for the government to carry out a legal and economic study of the property market.
“This is the end of the myth that property prices never go down in Malta. They do go down. And unfortunately the government is still taxing property transfers as if they are being sold at the high prices they are advertised,” said Malta Developers Association President Michael Falzon.
“The bubble is deflating rather than bursting but we have to manage the deflation. The government needs a holistic policy which gives due attention to the position of the banks. Without such a study, we don’t know if the government’s policies are right or wrong.”
The MDA has been asking the government to study the sector properly for a number of months but the report published by the Central Bank last week highlights the need to examine the banks’ exposure to it.
“The security of all the banks in Malta depends on property,” Mr Falzon pointed out, adding that banks were now finding it difficult to sell property at the desired prices after seizing it from loan defaulters.
Mr Falzon admitted that the situation in Malta was unlikely to end up like that in Ireland, Spain and Portugal because Maltese banks were more prudent and the situation was not dependent on one or two developers.
However, there are a number of factors that were causing property prices to drop.
Malta now had fiercer competition in the foreign buyer market, with affluent foreigners finding better offers in troubled but Mediterranean countries like Portugal and Spain.
There was also the problem of “overabundance” of properties, creating a buyer’s market that was pushing the price down. The situation was particularly bad in “middle” market.
“There is still a demand for the low-end properties of first-time buyers. But people who normally move up the scale in life and buy villas or semi-detached villas are finding it harder to make that move.
“There is less money in people’s pockets so everyone is postponing that decision.”
Mr Falzon said one of the consequences of this downturn was that people were leaving the construction industry for lower paid jobs like those in the tourism industry.
“On the government statistics, unemployment is not being registered but socially, when people move to lower paid jobs, it’s a big social problem.”
The MDA has suggested a study which would examine the stock of vacant properties, foreign markets, the local market, the banks and the legal framework.
Specifically on banks, the MDA says the government should propose ways to isolate any potential defaults, estimate the exposure of the banking sector to the construction industry and classify outstanding loans according to size and type of client.
The latest Central Bank’s Financial Stability Report, published on Saturday, earmarked the property market as a cause for concern as more residential dwellings were coming onto the market when demand was low.
Thirty per cent of bank loans were backed by commercial property, the report said, adding: “The slowdown in the property market, reflecting an ongoing structural adjustment, raises the credit risk associated with these projects. In particular, additional supply of housing units may extend the period of lull in property prices.”
The Central Bank warned that it was unlikely that the property market would return to buoyancy in the short to medium term.
Survey results from real estate agents indicated that house prices remained overvalued, although by less than what had been perceived the previous year.
Meanwhile, this month Finance Minister Tonio Fenech told Parliament that a number of new schemes were being planned to replace the defunct Permanent Residents Scheme, which served as an incentive to foreigners to buy property here. A consultation process is to be launched.
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Ian Taylor-Henderson
Jul 5th 2011, 21:30
I work for a British economic consultancy firm that specialises in the property market. We have just completed a full review of the EU property position and the results, as far as Malta are concerned, is staggering.
Without boring you with the detailed statistics, Malta is the only EU nation that has not had a tangible property adjustment in the last 10 years. Even factoring in the size of the country this is unsustainable, when one considers:
- The last five years have seen an average of 14,000 properties being build each year. For an island with a population of only 400,000, this is shocking overdevelopment. This would for example equate to building 2.1 million homes per year in the UK
- There is such a chronic over supply 9n Malta that 1 in 4 homes currently stand empty.
- Rental yields on long term lets are between 2-3% of capital values. From an economic perspective, if one factors in the average cost of a mortgage and inflation, this is unsustainable.
- Malta's historic property price trump card - that it is a Mediterranean island with a plethora of willing overseas buyers - has effectively dissolved following the Spanish house price crash. Values in Spain are an average 45% lower than comparable values in Malta.
The conclusions of our report, therefore, were that a sizeable crash in Malta in the next 18 months is an economic certainty. Malta has overstretched it's property market beyond any reasonable limits and a readjustment is the inevitable conclusion.
Peadar Farrell
Jun 28th 2011, 23:53
Mr Falzon said "The bubble is deflating rather than bursting". In Ireland we heard that from his opposite number and the Politicians.
They called it the " the soft Landing" and spoke of it for at least 3 years until it all fell apart when nothing sold and the Developers defaulted on all their loans.
It’s following the exact same pattern here now. For MEPA to issue any building permits at all has to be a crime against the nation.
When the bubble is bust or even deflated the problem will have to be fixed. The developers and Banks will be bust and you guessed, the ordinary taxpayer will pay to fix it all. Sorry to be so down beat but I have watched it all unfold before.
Peter Bowring
Jun 28th 2011, 23:16
More and more unwanted apartments. Is it the banks and MEPAs remit to allow and sanction the total destruction of the island to the highest bidder for the sake of friendship or interest profit. Do the banks or for that matter MEPA really care about the island? or are they happy to be known as puppets of the developers. I agree with the comments in a previous edition of this newspaper when the contributor said Malta has become ugly. The simple laws of supply and demand should tell anyone with half a brain that over supply will force prices down and does not add to the attractiveness of the island. Surely we do not need a study to tell us this. Perhaps somebody should look at the long term effects on the tourism industry of overdevelopment. Nobody wants to visit a concrete jungle. I intend to sell my property which in hindsight I wish I'd never bought and I'm currently working out how much I can afford to lose. With the ongoing issuing of permits and loans maybe the banks should workout how they can afford to lose. I agree with Abert Calleja. We are rapidly heading in the direction of Greece, Ireland and Spain. Action is needed now.
Albert Calleja
Jun 28th 2011, 19:03
I tend to agree.
But this is not a bubble, it is a bomb waiting to explode.
Almost everyone knows about it except the present government, who as usual will let the people talk, hear them and then either do absolutely nothing or does it late. It is already late.
One reason why the property is not selling is the capital gains tax, which at present is at 12% payable by the seller on the selling price.
This is over and above what the developer has already paid in VAT (18%).
Another tax of 5% is payable by the buyer on contract.
This tax has to be lowered for at least the next five years but the finance minister does not want to change the tax.
According to him contracts are still being done regularly.
He is out of touch.
Very soon the banks will be getting stones in lieu of loans issued.
We are heading rapidly down Ireland's, Spain's and Greece's way.
Rocco Camilleri
Jun 28th 2011, 14:53
B'dan il-bini kollu kull fejn thares ghall bejgh, imma wieqaf ghax mhux jinxtara, jista jfisser li min issellef mill- banek biex bena mghanduhx biex ihallas lura lil min silifhomlu (Banek) u kif hemm sew fl-artiklu meta l-bank jiehu l-post mhux isib ibieghu l-istess hu ukoll, jew jekk isib se'jkollu jbieghu b'valur inqas. Issa x'se jigri jekk il-banek ma jkollhoms likwidita ta' flus biex jhallsu lin-nies li ghandhom flushom il-bank !!!! ihallsuhom b'xi kantun. Jekk mhux se' noqghodu ferm attenti bhall l-Irlanda, il-Greccja, l-Amerika u pajjizi ohra li belaw kanna se' jigrilna ahna ukoll. Il-Gvern messu ilu li fetah ghajnejh mhux iridu jigbdulu li spaga biex forsi jghamel xi haga. M'ahniex daqshekk tajjeb daqs kemm jghidilna l-Gvern - zgur. Ma' dan trid izzid li l-baqar li kellu jehilbu l-pajjiz kollha nghataw lil-barranin ghal-ftit karawett hdejn il-qliegh li qed jghamlu huma. Ma' kellniex xi Cucc Malti bissibli li jmexxihom !!!!!!, jew issa kemm ilna li thallna fl-Ewropa spiccajna 'Cwicc' kollha inkluz il-Parlament.
Mr Christan Brincat
Jun 28th 2011, 13:51
Here is the real economics in play, which the banks & construction magnates know full well
The banks have along the years happily welcomed the increase in property prices, as they make more money, same goes for the construction guys. They probably even had a hand in it.
When a time comes that there are too many properties on the market, the economy is sagging with unemployment increasing plus you add all the extra taxes and increases our government has been handing us, this creates the problem whereby too many homes on the market and nobody buying = price decrease.
This creates a big problem which is happening all over the world,as usual it reaches malta after we've seen it happen most of the world. too many properties, not enough byers, price goes down till it reaches a point wherebt the loan on the house is higher than the value. Most people in the US and other countries, simply walked away from their homes and bought once across the street for a fraction of their mortgage. Same will happen here. the bank will have increadible losses as they will have all these properties and no buyers. Next scenario will be to ask the government to intervene, excuse i am mean bail them out with our money. nothing new there, its happening in almost every country in the western world. the only difference here is that the banks and the property guys are asking the government to intervene before the collaps to their earnings.
In anycase we the people will end up paying for their greediness and they will own more land.
Rocco Camilleri
Jun 28th 2011, 17:49
Well said Mr.Brincat we are at the edge of the cliff. This is all due to uncalculated projects/ building permits, because the PM's only rise in Honoraria 500 euro per week plus other percks and absence from parliamentary sittings voted. We have got a Government who is insensitive both to the peoples' cries and what is going on in our home country. This is the same what has happened in our 'National Airline' because Dr.Gonzi had enough time together with the management / CEO's which he posted in the field, to realize what is happening around us in the global world. Now he brought outsiders to try and solve the created problem, with fenominal payments to tell us what to do. This all shows that there is no Credibility, and Accountability in this Island where a lot of work, through sagrifice was made by our Grand parents and not 'Cwicc' Prim Ministers, Ministers and others who gave their time for this. We are not being treated with Honesty and it is to be going even harder for a new Government to govern with all this hefty debts on each person's head.
dave bugeja
Jun 28th 2011, 12:49
An increase of property prices would only create more problems to families who cant keep-up with the banks' high interest loan payments and are forced to work more, spending less time with their loved ones. What happened to our moral responsibilities? Should the gov decide to keep property prices high just to protect the banks' finances? And what about all those new couples who wish to buy their own property? Why should the gov protect and sustain a system which is creating so much challenges to our society? Cant banks find other, more sensible means to generate their own profit?
Mr Carmelo Aquilina
Jun 28th 2011, 11:57
developers made millions by over-buiulding since the 1960s and ruined the the country and now they have the cheek to ask taxpayers to fund a study into their market- we should say - your mess - your money
Mr John Azzopoardi
Jun 28th 2011, 10:44
What are you going to study. Aren't the banks the ones who created this problem for lending money to everyone that comes for a home loan, evfen those who cannot afford it. Well, you created the problem, now deal with it. Some people live within their means, other splurg in expensive apartments, houses or villas. It's time to take responsibility for your actions. That is what happened in the US. The banks were too greedy and they lent money to everyone. And those who follow business matters know what happened.