St George’s Bay’s towers of gold: real estate starts hunting for the global rich

It could be billed as Malta’s most exclusive enclave for the years to come, but the scale of the ‘Dubai-ification’ of St George’s Bay – as millionaires get ready to erect at least eight new towers in the area – could spell inflation in housing prices and a risk to social cohesion, an economist has warned.

The ultra wealthy are being lured to a future of high-end residential development and luxury lifestyle areas as developers and business groups hope to maximize their land values at St George’s Bay, aided by a new planning policy Labour has introduced for high-rise development. Appetites have been whetted.

Seabank hotelier Silvio Debono wants to build two towers for his Hard Rock franchise at the site of the Institute for Tourism Studies; Alfred Pisani, owner of the Corinthia hotels group, plans two towers instead of the Radisson Hotel and eight new apartment blocks along the St George’s Coast; Anthony Camilleri’s Garnet Investments plans a Zaha Hadid creation spanning from the Cresta Quay lido to Moynihan House just beneath the ITS, with a tower at the foot of St George’s Road; another two Zaha Hadid towers will be erected over Mercury House in Paceville by developer Joseph Portelli, who is also earmarking a 15-storey complex behind the Intercontinental Hotel; next to this new complex will be a 25-storey hotel built by Paul Xuereb; and the St George’s Park complex owned by the Testaferrata Group is also planning its own tower.

The Hard Rock hotel that Seaport Franchising plan to develop on the site of the ITS college at St George’s Bay. Towering behind it will be the new Corinthia towers

The Hard Rock hotel that Seaport Franchising plan to develop on the site of the ITS college at St George’s Bay. Towering behind it will be the new Corinthia towers

The Hard Rock hotel that Seaport Franchising plan to develop on the site of the ITS college at St George’s Bay. Towering behind it will be the new Corinthia towers

Residences in the special designation areas of Portomaso, Tigné Point and Fort Cambridge – which allow foreign buyers to purchase more than one residence – are already tagged at €8,000 per square metre. Only buyers with deeper pockets can be expected to be attracted to St George’s Bay. To go by Corinthia’s chairman Alfred Pisani’s words, it’s going to be Dubai and Singapore all right.

These are the Ultra-High Net Worth (UHNW) individuals who will buy most of the residential units within the luxury lifestyle developments; some of them may well be new citizens who acquired Malta’s passport at €650,000 under the Individual Investor Programme.

But the consensus among real estate developers and agencies is that there cannot be enough of such development. 

Francis Spiteri Paris, of Perry Real Estate, said the biggest problem realtors faced at the moment was that there was not enough supply of high value real estate in Malta. “At the moment, there is no major development underway. All the units available at Portomaso or Tigné, to name only two, have already been sold, and we currently have no luxury lifestyle development to sell to our clients.”

The introduction of the IIP was a huge boost to the industry, Spiteri Paris says. His agency, for example, saw a huge increase in the number of foreigners buying property in Malta since the programme’s introduction.

“I think no one in the industry had realised just what was going to happen with the introduction of the IIP,” he said. “This has been such a bonus for the property industry, that it’s unbelievable.”

Spiteri Paris said wealthy foreigners are looking for much more than a second or third residence. “They are looking for a lifestyle, and they expect everything to be of the same luxury they are accustomed to, including the surrounding area and facilities.”

And although Malta is one of the smallest countries in the world, with its rich history, year-round sunshine and friendly locals, it continues to attract these UHNW individuals. As the IIP continues to attract many former Russian nationals, it is easy to understand why Malta’s economic and political stability also make it an attractive base for the global rich.

France, Germany and the US are the top countries for foreign UHNW investments in Maltese property, where the average listed price for homes over €1 million is around €2.5 million. The median price per square metre is around €6,500 in that price range.

According to Wealth-X and Sotheby’s International Realty, in 2015 Malta was home to 35 UHNW individuals and two foreign billionaires. The 35 multi-millionaires were each said to have an average net worth of €145 million.

Zaha Hadid creations: the two-tower behemoth in Paceville on Mercury House

77% of UHNW foreigners who acquired a residency permit in Malta were self-made, and on average, 59 years old. One of Malta’s billionaire residents is Irish-born Denis O’Brien who owns Communicorp, a media holding company operating across Europe. He was listed among the world’s top 200 billionaires in 2015.

If you thought that high-value properties were only restricted to Special Designated Areas, think again. A quick search on any Maltese luxury property real estate website will quickly disabuse you of that notion. Perry.com.mt turned up 264 properties over €950,000 available for sale.

The highest-value property is a €9 million Madliena villa. Sotheby’s lists 158 properties over €1.14 million. The most expensive property on their books was a villa in Mellieha, valued at more than €9 million.

A similar search on Homes of Quality returned 207 properties over €1 million. A palazzo in Qormi tops the list with its actual value revealed only on request but definitely costing more than €15,950,000.

And these figures are only the tip of the iceberg as agencies rarely, if ever, include all the properties on their website.

The development of luxury residential areas is also pushing property prices up across the board. Spiteri Paris acknowledged this issue but said he was encouraged by the ingenuity and entrepreneurial spirit of Malta’s younger generation. “Obviously,” he said, “some people will be left behind. But most are enterprising and will succeed.”

But what of the future?

What is the outlook for real estate development globally and will Malta follow? Or is Malta too small to be able to sustain the level of development – and rate of growth – we are seeing today?

The St George’s Bay peninsula: hotel groups Corinthia and Island Hotels built three hotels on public land that was sold on the cheap in a bid to develop Malta’s high-end tourism product. In 2016, Corinthia acquired the Island Hotels group

The real estate landscape is changing worldwide and Malta is no exception. Global megatrends will change the real estate landscape considerably in the next five years and beyond. And while many of the trends highlighted are already evident, there’s a natural tendency to underestimate how much the real estate world will have changed by 2020.

In its report ‘Real Estate 2020: Building the future’, PricewaterhouseCoopers (PwC) identified six key trends it believes will have profound implications for real estate investment and development. One of them is that collaborating with governments will become more important in order to mitigate risks of schemes that might otherwise be uneconomic. And that competition for prime assets will intensify further with the investment community having to think laterally to earn attractive returns. 

Even in Malta, the new Labour government has been eager to accommodate the developers and businessmen seeking to overcome major planning hurdles. The high-rise planning policy is one of them; a new corporation that will coordinate the infrastructural overhaul which St George’s Bay will need as development gets underway is another pledge made by Prime Minister Joseph Muscat; his government has actively considered land reclamation, and it is clear that various parcels of public land have been apportioned for private developments by using less onerous methods of public competition. 

PWC also warn that a broader range of risks will emerge: climate change, accelerating behavioural change and political risk. Real estate investment organisations will need to make sure they have the right capabilities and qualities. “It’s an exciting time for the real estate sector. Private capital is in huge demand for development and investment, yet competition for prime assets is intense. Never before have local knowledge, specialist expertise and good government relations been more important. Looking forward to 2020, it’s the real estate managers and investors with the vision to anticipate emerging trends in the medium term and to prepare for them, who will be most successful.”

Caution on the boom

Economist Gordon Cordina warns that unless the community attracted to luxury lifestyle developments and the Maltese population in general find ways to gel together, a social divide could very well develop between the two, leading to relative poverty outside these developments.

“Malta could become a regional holistic lifestyle destination, offering quality medical services, education, entertainment and work opportunities to complement the luxury properties that wealthy foreigners seek.”

Cordina said that Malta’s obvious vocation for economic development is to serve as a lifestyle destination, which over the past years it has sought to exploit through attracting foreign direct investment and tourism, together with offering attractive one-stop shop solutions to new areas such as digital gaming and financial services.

“This concept can in future be extended towards a holistic lifestyle proposition where Malta becomes a regional centre where one can lead a healthy life, seek recreation and entertainment, obtain quality medical services and education, and of course, work in higher value added services where physical distances are not an obstacle.”

This would entail providing quality spaces for Malta to serve as a cosmopolitan centre for global and home-grown talent to intermingle and generate economic growth and wealth.

If undertaken properly, Cordina said, this vision has great potential for Malta. 

Some major risks would have to be addressed, he insisted.

“One big flaw I see is the insufficient quality in infrastructural services and environmental amenities,” he said. “This would nullify the significant expenditures undertaken in individual projects, so perhaps the private sector could itself be induced to contribute to infrastructure and the environment.”

Cordina said the risk of a social divide between the wealthy attracted to the luxury lifestyle developments and the Maltese population in general was quite real.

“There could be a specific fund created to enhance social cohesion, including affordable housing, through the taxation which government would be obtaining through these projects, which can be a significant amount,” he said. 

He also saw a risk in cramming too much development in a short time, risking bottlenecks in development activity at the same time and having supply not being able to meet the demand.

Cordina suggested that a specifically-dedicated government agency would be essential to manage and address such issues.

“It is equally crucial that individual entrepreneurs are fully aware of how their actions influence others and vice-versa,” he said.

“These are risks which can be managed through proper policy design and rational business decision-making.”

Billionaires, ultra-rich and IIP citizens in Malta

Denis O’Brien, 58, Irish citizen worth $5.8 billion Cell phone tycoon owns 94% of Digicel, a mobile phone network provider that operates in Central America, the Caribbean, and the Pacific Islands. O’Brien has been on a deal-making binge in Ireland, snapping up distressed assets on the cheap and turning them around. The son of a political activist, he says he tries to operate on an 80%-business, 20%-philanthropy ethic 

William Erbey, 66, US citizen who recently acquired Maltese citizenship The Mortgage titan built Ocwen Financial into one of the US’s largest nonbank mortgage servicers after big banks retreated from the space during the financial crisis. Forbes reports that authorities allege Ocwen required underwater homeowners to buy a specific type of home insurance policy through a company, Altisource Portfolio Solutions, in which he has a significant stake, allowing it to generate $65 million in fees

Oleg Muradyan, Russian citizen who recently acquired Maltese citizenship Muradyan is president of VEB Leasing, a company established with the participation of Rosoboronexport – Russia’s export company for military and defence technology – to raise the competitiveness of defence industry and civil engineering enterprises.

Marwan Albawardi, recently acquired Maltese citizenship Co-founder of Oasis Ventures, a private investment company. He was formerly vice-president of Goldman Sachs International and Goldman Sachs Monaco. Harvard Law School graduate, he holds degrees in political science, development economics, law and diplomacy, and international monetary theory. 

Oleg Smirnov, recently acquired Maltese citizenship Head of SNS, one of Russia’s main distributors of tobacco. The company distributes British American Tobacco products for Russia, and tonic and carbonated beverages of the GFD AG company. Another important business activity of the Group of Companies is production and distribution of lighters under Delta and Just brands.