Transparency in the property market

No market can be credible unless it is underpinned by a commitment to transparency by all those who play a role in such a market. The property market is no exception. Yet, the local property market needs a large dose of transparency if it is to attract more interest from those interested in property investment.

One essential element that is still lacking in the local property market is a credible means of valuing property. Property valuation today is determined by various inaccurate tools. One such tool is a valuation by an architect or an estate agent – hardly an objective means of determining the market value of property. Another means is the index compiled by the Central Bank that bases its valuations on advertised prices – once again a very inaccurate means of determining market value as properties are often sold at prices very different from those advertised.

To make monitoring of the property market even more confusing we are often inundated by pseudo analysis of the market in the business media. There are still some so called ‘professional’ financial advisers around who perpetuate the myth that investment in property is a safe bet that cannot go wrong. The recent Central Bank report on the current situation in the property market as well as the comments made by the Malta Developers Association kills this myth.

A solution to this lack of objective information about property prices is not as difficult as some may think. The economic collapse in Ireland was mainly brought about by a passionate belief of the Irish in the last few years that investment in property was a risk-free and fast way to multiple one’s wealth. Today, property in Ireland is worth less than 50 per cent of what it was worth in 2007 at the peak of the boom.

The Irish seem to have learned their lesson and are now proposing a very sensible method for introducing some transparency in the property market. NAMA, the government agency that is managing the sell-off of the overvalued properties that burdened the Irish banks’ balance sheets, intends to introduce a property-sale register to reveal the real market prices of property.

A new house price index compiled by the Irish Central Statistics Office will provide the first independent assessment of the extent of the rise and fall in property prices. The first results of this index will be made public this month. It will calculate the trend of property values based on details provided by mortgage lenders on a national basis. The Irish Statistics Office has stopped short of committing itself to publish the details of the actual house prices.

But NAMA wants to take this issue a step further by proposing that Ireland should introduce “a national register that would contain details of what houses and apartments were actually sold for”. NAMA chairman Frank Daly has already said it was “high time for a register detailing all residential and commercial transactions was set up”. Interestingly, this move was welcomed by the Irish Institute of Professional Auctioneers and Valuers and the Independent Mortgage Advisers Federation.

An assiduous property market analyst could in theory monitor the value of property being sold in Malta by taking notes from the sale contracts registered in the public registry. But even here we seem to have our own peculiar way of doing things. The tax on the sale of property has been established at a more reasonable level than was the case up to some years ago, but few analysts of the market can put their hands on their heart and vouch for the authenticity of the sale prices quoted on the official contracts.

The introduction of a property-sale register as well as the compiling of a house price index by our own National Statistics Office could help to introduce more rectitude in the recording of property prices in official contracts. It should also help the tax authorities to identify more effectively deals where the sale prices of particular properties look suspiciously low.

The success of a plan to introduce more transparency depends on banks cooperating to provide the relevant information that may be needed to supplement the information available in the official property sale contracts.

An obstructive legalistic attitude and an insincere concern to safeguard ‘professional secrecy’ are unfortunately threatening the trust that should exist between bankers and society. We should rather be promoting more transparency – especially in the workings of the property market.

jcassarwhite@yahoo.com