The construction and property markets have attracted much attention in recent years. For a long time a main driver of growth in the Maltese economy, they entered into a period of decline due to a mismatch between supply and demand, with the former outstripping the latter by a long mile. As a result prices of all types of buildings went on a downward trend.

In the process too, employment in construction weakened making the sector one of the sick segments of the economy. Another side effect was that there was increased attention, by the Central Bank, the IMF and rating agencies, to the exposure of the domestic banks to builders and property dealers. The question now is, is the wheel turning?

The replies are mixed. According to the Central Bank, which surveys the property sector regularly, prices are still falling but at a lower rate than hitherto. Disaggregating the index one finds that prices of apartments are still dropping. A very substantial decline in building permits issued by the Malta Environment and Planning Authority compared to a year ago was mainly attributed to a lower number of permits issued for apartments. In contrast permits for maisonettes rose by over a tenth. These movements relate to the first quarter of this year.

On the other hand, property developers and estate agents say that prices of apartments are stabilising, and they also expect demand to rise. One reason given by the glimpse of stability is that new apartments coming on the market are of a higher quality.

The observation regarding quality is correct. It seems amazing that, despite the decline in demand, developers continued to put up substantial blocks of apartments. Yet it is also true that these apartments broke the trend towards mediocrity which had developed in recent years.

Developers with savvy who could persuade the banks to lend to them, albeit on tighter margins, correctly concluded that there was a demand for apartments provided they were of good quality, and that such demand came mostly from expatriates working in Malta tapping the local rental market. Possibly this demand is creating a fresh excess supply of this type of apartments, but that is not as yet obvious.

Alongside that possibility is the relaxation in the regulation of permits to be issued to non-residents. The impact of such relaxation has yet to be felt. But many developers and estate agents are confident that demand from that quarter will rise, possibly also for purchases of prime property.

A leading estate agent commenting to Times of Malta on Monday also read the picture as saying that there was recovery in demand for houses and villas by locals. This, he said, reflected a trend towards buyers wanting outside space, especially young families. There was a dearth of such properties which was pushing prices up, he said. Though this push has yet to be captured in the Central Bank’s survey, it is probably there, a reflection also of high remuneration to Maltese employees in the growth sectors of the economy.

There is still a need for a proper study of the unoccupied property sector

Such positives dispel some of the gloom which has prevailed in the construction and property markets. That is not to say that it will trigger fresh bouts of feverish speculation – speculators who are in a tight squeeze serve as an example of what not to do. Also, the banks are not going to permit lending which can be traced to a desire to speculate, even if such desire were to exist.

Let’s say that gloom does subside, does that mean that the property problem is being resolved? That certainly cannot be said when official figures show that there are some 72,000 vacant properties in Malta and Gozo, around a third of the domestic housing stock. Truth is that most of these empty properties are of inferior quality and will remain empty, unless they are turned into slums with purchases or rentals going to individuals who then cram tenants into them, possibly drawn from the immigrant sector.

There is still a need for a proper study of the unoccupied property sector to show how much of it is actually habitable. If that is established, fresh thinking should be given to possibilities of reducing this vacant stock. The banks can call in loans, forcing developers to register losses and then try to offload properties at their forced sale value or less. The Government can consider subsidising sales at forced sale value rather than building fresh stock of its own.

With some 3,000 heads of households seeking accommodation and 72,150 vacant properties it is surprising that schemes have not been found to satisfy demand and thereby reduce the unoccupied stock, marginally so but better than nothing at all.

Even if new thinking were to combine the two parameters for some progress, there will still be a high stock of unusable empty accommodation. I wouldn’t be surprised if, in time, some of this stock will be knocked down to make space for better quality accommodation.

Whatever the out-turn this problem will drag into the future. It’s a good thing that the banks have made very substantial provisions for property loans and are probably alert to see if more are required.

Meanwhile with the Budget for 2014 being drawn up it will not be amiss for the Finance Minister to consider how property is taxed. Circumstances have radically changed since this was done last.

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