Chris Grech, the Dhalia chairman who was among the first people to call for regulation of the real estate sector, has warned that the new system must be in place in the next six months.
“The industry must be policed if it is to be held accountable, so nobody can con any potential customer, including foreigners, or raise their expectations about the possible return on their investment. If that were to happen, we would destroy Malta’s reputation for property as Panama Papers has done for the financial sector,” he said.
He noted that the number of people employed by the sector had grown four or fivefold in as many years, and that there was a growing percentage of people who do not deliver the right service.
“Do all agencies insist on a police conduct certificate? We worry because we have turned people down because they do not have one – and we then hear that they are working somewhere else… We are entrusted with the biggest investment of people’s lives. We need to be qualified to do so,” he said.
The government issued a White Paper on regulation of the sector a few months ago and the aim was to issue the new framework by summer. But he admitted that his original vision – self-regulation – may have been “a bit of a dream”, which he had based on the British model.
“That is what I would have wished for, but that could not work here. Unfortunately, we don’t agree among ourselves and a number of estate agents are not prepared to invest in the future of the industry. This is why it is important that a regulation framework should be set up and imposed by government. This is the only direction we could have taken and I think it is the best option for success.”
The growing number of property negotiators is the result of a boom in the property sector, fuelled by the influx of foreign buyers, but unfortunately this is the time at which sectors are most vulnerable to cowboys out to make a quick buck.
“They harm the industry as their only priority is to close the deal and earn a commission,” he said, shaking his head.
Another problem is that the public believes that it is real estate agents that drive up prices to persuade vendors to list with them as well as to boost their commissions. But Mr Grech scoffs at the idea: “Real estate agents don’t drive up prices. We don’t have the power to do that! We advertise properties and show people round. Prices react to the market – to supply and demand.
“Let me give you an example. Estate agents did not fuel the influx of investors from overseas but they are obviously the ones who reacted to it, showing them the right properties offering value for money, and guiding them with regards to capital movement, residence and citizenship, permits and so on. We have a stake in making sure that it is successful,” he said.
However, that does not mean that he is oblivious to the potential instability that would result from having everyone jump on the bandwagon, particularly when it comes to ‘buying to let’. Other agents have already voiced concern that investors are not always acting rationally and are so desperate to buy property that they do not take into account price and location.
Sensara do not necessarily take on the full responsibility of both buyer and seller. But sensara should have the opportunity to go the whole hog and insist on the same opportunities
“I agree with them and I have the same concern. The market is growing too fast. Anyone sensible can see this! I cannot see how the Malta Developers’ Association could possibly deny this!
“But what can we do about it? We are not blowing up the bubble ourselves: it is the investors who are causing this,” he said, adding that developers were falling over each other to put up tower blocks in a number of locations.
The proposed regulation also revealed another fault line in the current system, which was highlighted during the last Business Observer breakfast, when sensara Janice Azzopardi vociferously defended their business model and its right to exist.
“I know the lady at the event was very defensive and felt that regulation would work totally against them. I feel totally the opposite.
“The profession is important as part of the modus operandum of the industry. Dhalia has been around for the past 35 years and has always used sensara. They know who owns – or inherits – properties in villages. This local information has always helped us to update our database and to put properties on the market.
Dhalia chairman Chris Grech. Photo: Matthew Mirabelli“But sensara lack buyers – especially in the past, although some of them now advertise, which they never did a decade or so ago. Bringing buyers and sellers together has never been their strong point. This is why the most effective ones are those that worked with estate agents. They referred properties to us to put on the market and when we sell them, one per cent was paid to them. So they got their commission for the work they did.
“We still work with a number of local sensara to this day as we have developed relationships with them and see them as our eyes and ears on the ground,” he said.
He is, however, pragmatic about the impact that they have on the market, insisting that they do not contribute to the market to the same extent as real estate agents – and would never be able to do so as they do not accumulate large databases.
“They cannot appease a potential buyer who will want to see multiple properties, perhaps in multiple locations,” he argued.
One point of contention is the fact that sensara would also need to be trained and get certified if they wish to be registered. At first, Mr Grech, thinking out loud, pondered whether they could be trained to different standards reflecting the more limited clientele. Could there be a two-tier licence – say a basic and an advanced one?
“Perhaps. Sensara do not necessarily take on the full responsibility of both buyer and seller.
“But sensara should have the opportunity to go the whole hog and insist on the same opportunities. However, they then have to be prepared to go through the process. Some sensara are elderly and have no access to computers. Some might even be illiterate which would make it hard for them to get certified,” he said.
The trick with having a two-tier system would be ensuring the consumer protection that it is supposed to provide.
“It is not an easy one. The local sensara are part of our tradition and that should not die because of progress. But some people are going to have to be shelved, unfortunately. It is very difficult to have two weights and two measures. Regulations should have one policy – not different ones for different people. But we are talking about the exceptions who will not go through the pain of training.
“It is a difficult situation but we need to think up new ways to find a solution. We cannot argue that things have to stay the way they always were. They will resist change but you cannot ignore reality. The majority of them are not equipped to provide the service the customer deserves. They don’t have the information on banking and market value, for example.
“A substantial amount of investors, developers and property owners want to work through estate agents because they want exposure to the overseas target market.
“One has to realise that up to very recently, 90 per cent of the market was local. But it is now changing and the percentage is falling very fast. Very soon we will have 50 per cent of our market being foreigners…
“The percentage of foreigners and businesses buying and leasing property is increasing, although the number of Maltese in absolute terms is not declining. In 2015 – there was an increase of 35 per cent in terms of sales and this is just the beginning. There will be thousands of apartments in upmarket areas coming on the market in the next two to three years – and others in residential areas around the island. We are experiencing a surge.”
Mr Grech believes that regulation will contribute to stabilise the market, pointing out that the alternative does not bear thinking about.
“We need to remember the past. The bubble did burst in 2009 – but fortunately it was not a big burst because banks had already throttled back on loans.
“If we try and work closely as a body with the banks, the financial sector, the Chamber of Commerce and the business community, we could try to correct the market together – rather than thinking about bursting bubbles, which sounds negative… It is a very big challenge but it will work if everyone does their part by thinking about the long-term benefits and building up a solid foundation.
“It needs to be at government level too. You will have organisations like the MDA which challenge this view and challenge how this could be done! We need to find a system where prices do not keep going up.”