Revitalising the property market

The property market has been in the doldrums for quite a few years. The overhang of vacant properties that according to some estimates exceeds 70,000 units is just one of the reasons why sales have slumped, even if estate agents try to talk up the market by claiming that sales are picking up. So what needs to be done to revitalise this important sector of our economy?

Fiscal incentives for first-time buyers, as well as for those considering buying property as an investment, should be encouraged

The first thing that needs to be done is to introduce more transparency in the market. If investors are going to look at property as a viable alternative means of investing they need to have precise information on the real movement in property prices. The price indices that exist at present, including that compiled by the Central Bank, do not inspire confidence in property market analysts.

Ireland faced the same problem, and following the property crash of 2008 they introduced a new index that reflects more accurately the movements in property prices. This should be the way ahead for us too.

Another important measure that should be considered is that of incentives on the demand side of the market. Fiscal incentives for first-time buyers, as well as for those considering buying property as an investment, should be encouraged. The pricing of loans for property purchase could be managed in a way that makes borrowing to buy property a worthwhile venture. The benefits of a revival in the property market will permeate most sectors of the economy.

I am more hesitant when it comes to recommending action on the supply side to ease the pro-perty slump consequences. Admittedly the property market is made up of different sections. The higher end of the market that deals in premium properties is not facing the same kind of problems being faced by the lower end of the market, which is overloaded with thousands of sub-standard pro-perties that are often unsaleable.

The new scheme for enticing non-EU residents to buy property in Malta in return for local resid-ency is indeed welcome. One of the concerns raised by the previous scheme was that the threshold to qualify for such resid-ency was set at a very high level. This has now been corrected.

Another concern related to the “rights” of new residents to free health and education once they started living in Malta. The pressures on our public finances need to be eased by, among other things, rationalising benefits entitlement to new residents.

The developers who own pro-perties in the lower end of the market must realise that to sell their vacant properties – some of which may not even be completed – they may have to accept a substantial haircut on the prices they expect to charge to prospective buyers. In some cases it may be more economically feasible to pull down unfinished substandard properties and utilise the land for more prestigious development. This is what was done in Ireland to ease the downward pressure on property prices of unattractive development projects.

Another option to ease pressure on the market could be that of disposing of some properties for social housing. With a waiting list of almost 3,000 applicants for social housing, the Government could consider addressing this social problem by buying some of the unsold properties on the market or assist those needing such housing to buy these properties themselves with soft loan terms.

Ultimately the best chance for the property market to bounce back to healthy growth is for Mepa and developers to insist more forcefully that new development must conform to much higher standards than is generally the case at present. Property in Malta is not cheap when compared to similar properties in other locations. The times when a developer aimed for a margin of 20 per cent to 30 per cent on cost may be well behind us. The secret of success in this market, as in many other markets, is to add value to customers without increasing prices.

The financing of property deve-lopment can never revert to the bad old days when developers expected banks and prospective buyers to fork out practically all the development costs. The days of selling properties on plan before excavation of the building site has even commenced may never return. Developers must be prepared to risk more of their own money on projects that they believe have the potential to sell well.

I believe that the property industry in Malta will bounce back if all those involved are prepared to share in the risks associated with development.