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The interview carried by this newspaper last Sunday with Mr Frank Salt, a pioneer in real estate agency and property development in Malta, raised at least three issues that require comment.
The first is the commission rate earned by estate agents. Mr Salt’s defence of the standard commission rate of 5 per cent may be understandable to and welcome by anyone who is making his/her living off the property bonanza. However I cannot help asking how it remains acceptable to the rest of us (more so to the authorities) that a profession that till this day remains unregulated is afforded such fees/commissions. Compared to other professions this position is indeed privileged. Allow me to draw a comparison with stock brokers.
Our laws require (rightly so) that stockbrokers are highly qualified and very strongly regulated to be given a licence to advise somebody on the investment of a mere Lm1,000, on which they make miniscule commissions and/or fees. On the other hand so-called property “consultants” requiring zilch qualifications and subject to even less regulation, are allowed to whisk clients away in their cars to “advise” them on what will probably be the largest investment of their life, charging some 5 per cent in the process. In the UK, a market I believe Mr Salt knows well, commissions are no more than 1.5 per cent. In such a liberalised market it is no surprise that every third corner shop in areas like Sliema and St Julians have been converted into real estate agencies, many staffed by people whose job requirements are sometimes limited to the possession of the perfunctory car and mobile!
Secondly I find it absurd that the gentleman believes that Malta’s economic prosperity depends upon the rape of our coastline to accommodate more monster projects like Portomaso. If this is the only economic vision he has for Malta, then I am truly relieved that he is no longer occupying a senior position in the Malta Tourism Authority. However on second thoughts this declaration is not completely surprising. It has been made by the same person who, in a business breakfast held by Business Today a few weeks ago, declared that evidently Malta did have significant open spaces left – a fact he claimed to have discovered, surprise surprise, after a helicopter trip over our islands!
I guess that the above two positions taken by Mr Salt may be somewhat inevitable considering that the man does live off an industry that has shown less-than-scant regard for our country’s environment and militant resistance towards regulation. However the third issue he raised is seriously worrying because it reveals that one of Malta’s leading estate agents, a man whose name is synonymous with real estate, may not understand the economic fundamentals of a rent market.
Mr Salt claims that the rent market is still under-developed because landlords require a 6 per cent return on their capital. I wonder what leads Mr Salt to declare such. Is he advising clients not to rent if a 6 per cent return is not forthcoming? Let me put it in no uncertain terms – a 6 per cent yield on long-term rent of residential property is way beyond impossible. The reason is that 6 per cent is what a borrower pays back a lending bank for a 35-year mortgage if the property is 100 per cent debt financed. A property purchased for Lm60,000 and financed completely through a bank loan, will require a monthly loan repayment of Lm300. This is equivalent to Lm3,600 per annum; exactly equal to 6 per cent of the property value. No landlord can realistically expect a return of 6 per cent on capital, because the prospective tenant can afford to purchase that property with the rent requested.
This leads to one of two conclusions: either the property is over-valued or a yield of 6 per cent is impossible. Whilst it is difficult to determine to what extent property is over-valued, it is obvious that an expectation of 6 per cent in rent yield is simply unrealistic. Personally I believe a yield of between 3-4 per cent is more achievable, especially when one considers that a capital gain of between 4-5 per cent is also possible. The reform in Malta’s rent laws that Alternattiva Demokratika had been working to bring about, requires a realistic approach towards property as an investment from all stakeholders; particularly people like Mr Salt who should be serving to bring about a level of affordability and sustainability to a market that has gone bonkers!
Whilst they go about making a living, may I humbly beg the gentleman and all those who share his profession not to support false market expectations that are only serving to add salt to this country’s wounds?
Edward Fenech
Alternattiva Demokratika – The Green Party
Spokesperson Finance,
Economy and Tourism
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