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An analysis of the local property market baffles belief. In spite of an oversupply of property, prices keep spiralling greatly above the inflation rate. This reality confuses economists. Its dire effects on the economy could be serious. The property bubble could burst with shattering social consequences. The Diocesan commission for justice and peace are rightly concerned. Prices are fast becoming unsustainable especially for first time buyers.
A number of factors have contributed to this preoccupying situation. Shamefully, the increase in price is not due to any shortage of supply but to speculative reasons. Properties sold and resold at preliminary agreement stage are inevitably fuelling prices. Other factors are having a negative effect too. Ironically, the competition amongst banks in mortgage loans resulting in lower interest rates together with a longer term loan for repayment has resulted in higher housing prices as it has increased demand and reinforced choices to buy rather than to rent. A perennial tendency since our rent laws, although limitedly liberalised, have still not led to an increase in residential leasing.
A total overhaul is long overdue. Regrettably there is no political will from both sides of the parliamentary house to implement this reform. A further factor which contributed to the increase in prices was the two amnesties legitimising the repatriation of funds. This encouraged tax evaders to invest in property where their return superseded the interest on their capital from foreign banks. It also spiralled prices to an unsustainable level. The effect of the increases in prices is also having a negative effect on the economy since consumer demand for other goods and services is being curtailed. Inevitably high mortgage monthly repayments lead to less disposable income for other goods.
Addressing this problem is a matter of national urgency. Government placed the environment as one of the three priorities in its programme, yet the glut of properties on the market is turning our once quaint and picturesque country into a concrete jungle. What can be done in this background of numerous pending applications in front of MEPA, a huge amount of vacant properties and an ingrained culture that property is the best investment? Waiting for investors to finally feel the pinch may not be the best way forward. We are witnessing a market failure. Supply exceeding demand is not contracting prices. Against the very instincts of this liberal paper we feel that drastic action, possibly intervention, is called for in the name of long-term social cohesion and fast, since the introduction of the euro is yet another factor which will spiral prices. That intervention could also be some sort of ‘soft habitation tax.’
More resources and funds need to be allocated to the housing authority, already committed to helping first-time buyers through various shared ownership schemes and grants for rehabilitation and completion of first properties. This government assistance needs further strengthening. The tax compliance unit needs to throw its attention more on property deals and less on legitimate running business concerns, already struggling to survive while property speculators are enjoying fast returns without the daily chews of running a business. A public discussion should also be ignited on the benefits of having a fixed interest mortgage rates as a way of lessening speculative tendencies.
Vacant properties should also benefit from even more generous restoration tax incentives as this will not only throw more properties on the market without the scars on the environment but will especially preserve the Islands of Malta and Gozo from further disfigurement.
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