In his article ‘Beware Montebello syndrome’ (June 1), architect Christopher Mintoff gives a perceptive foresight into the sustainability of the current rate of frenetic development of property projects and the repercussions if this industry were overtaken by the Montebello syndrome.
The danger is there and it is the president of the Chamber of Architects who is writing about it. He exposes the fears most of us harbour but are reluctant or afraid to express.
To expect the developers to self-regularise their operations is a forlorn hope. The buoyant property market will ensure a strong demand for flats, offices and other property at least for the immediate future or until the bubble bursts.
The Planning Authority is becoming more efficient at issuing permits while commercial banks continue to provide long-term finance by way of loans repayable over five, 10 or more years. In addition, some NGOs and radio and TV personalities are less vociferous than they used to be.
Why should we expect developers to hold back in these favourable circumstances?
There is therefore little chance that the trend described by Mintoff is reversed. The impact on the environment is bad enough but there is also the financial aspect to take into the equation.
The institutions that finance these projects are the local core commercial banks which, in principle, at least, do not borrow short and lend long. This is not to criticise the banks because it is to their credit that they have been able to do this while showing good profits and strong balance sheets. Without their intervention, the property/construction industry would grind to a halt. Yet, for every tower crane that dots our skyline there is inevitably a substantial bank loan repayable some time in the future.
We must recognise that it is not the function of commercial banks to carry these infrastructural projects or similar capital ventures. Burdening commercial banks with such long-term exposure is a risky short-term policy.
Take, for example, the huge loan of €360 million to Electrogas, a private borrower, to build a power station against a temporary government guarantee. Was it prudent to burden a commercial bank with this? The position will be worse for the bank when the government withdraws its guarantee once the agreement with Enemalta is operative.
The need for an investment bank(s) is more glaring in present scenarios.
An eminent banker had the foresight, some 50 years ago, to form the Investment Bank of Malta to relieve commercial banks of this burden. But matters did not evolve the right way and this initiative lost its momentum.
Shifting borrowings to an investment or merchant bank would bring some rationality to the market but it will not heal the festering wound being inflicted on our environment and this is a major problem which can cause irreversible damage.
The remedy here is the political will to stop the rampage of the developers who see nothing beyond the money to be made.
Unless there is this political will, we will inexorably find ourselves in the grim and stark situation described by Mintoff.
Sooner than we think.
Joe Pace Ross is a retired banker