The bubble is not bursting yet | Sandro Chetcuti

Malta Developers’ Association chairman Sandro Chetcuti argues that the ‘property bubble’ will only burst if Malta changes its cautious approach to construction and development

Raphael Vassallo
10 July 2016, 9:15am
Malta Developers Association chairman Sandro Chetcuti. Photo: Ray Attard
Malta Developers Association chairman Sandro Chetcuti. Photo: Ray Attard
He may not immediately look the type, but Sandro Chetcuti certainly has a way with words. Fond of expressing himself through popular idioms, he provides the media with exactly the sort of one-liners any copy-editor would immediately seize on for a headline.

Two examples immediately spring to mind. Addressing a meeting of the Malta Developers’ Association, Chetcuti (MDA’s chairman) urged members to ‘make hay while the sun shines’. In the context of recent changes to the 2006 local plans to permit ODZ development under certain circumstances, this was interpreted by some as a rallying call to avail of the resulting construction overdrive.

Separately, he famously likened Malta’s two main political parties to ‘supermarkets’, where one picks and chooses the most desirable ‘products’. Later I will ask Chetcuti to expand on at least one of those famous quips; but when I meet him in his Marsaskala home, it is against a backdrop of a nationwide debate about ‘high-rise’. 

In truth, we have been discussing the issue for years now; but a sudden spate of applications for skyscrapers – mainly concentrated around the Swieqi-St Julians- Sliema-Gzira area – has brought to the surface a number of deep-seated doubts regarding the sustainability of the entire construction sector.

Property agents such as Chris Grech of Dhalia were among many who sounded the alarm that the ‘property bubble’ might be about to burst, as a result of a glaring mismatch between demand and supply of residential units. There are logistical questions, too; can these areas sustain the volume of traffic, sewage and other impacts such huge development projects are likely to entail?

 “I would depart from the concept that, first we must look at what is permissible to build. But instead of building that horizontally, there is room to open up spaces and reduce the size of the footprint by going up vertically instead. That way, the chances are that – instead of a building/street/building/street townscape, where there is no breathing space between buildings – you could have a proper urban regeneration….”

Here he breaks off to point out that it is a little late in the day to be considering restrictions on height, given that such restrictions were relaxed in the past.

“At the end of the day, we are still going up vertically, even if to four, five or six storeys. Before the height restrictions were relaxed in 2006, and the zoning was two storeys everywhere… if things remained that way, there wouldn’t be such demand for high-rise. But once we’ve already allowed buildings to go higher, and seeing how certain areas have evolved as a result – already reaching eight storeys, in some cases – the fact is we’ve gone up already...”

At the same time, Chetcuti’s argument hinges on a best-case scenario: that is to say, if high-rise comes about at the expense of horizontal development. Recent experience doesn’t point in that direction, however. Urban sprawl has certainly not stopped because of the height restriction relaxation. And individual projects seem to bear this out. The Metropolis project in Gzira, for instance, involves significant high-rise but no public space… certainly not as envisaged in the floor-to-area ratio policy…

“Metropolis is a case in point. It was approved at a time when there wasn’t even a policy for high-rise, let alone a masterplan. To this day, I am still dumbfounded that it was approved. By what right, and under what policy, was that permit granted? That sort of planning is wrong. I am not saying I’m against the project itself; let me make this clear. And to be fair, there was no policy at the time. Neither the ‘tall building policy’ nor the ‘floor-to-area ratio’, had been approved. So that project surely isn’t the best example of good planning…”

Perhaps, but it gives us an indication that MEPA takes (or took) such decisions without considering the wider implications. Why should we be confident that it won’t do the same thing again, now that there are six or seven mega high-rise projects at application stage?

Chetcuti however warns against confusing ‘applications’ with actual permits. “As far as I am aware, MEPA has not approved any big project application since the tall building policy. I don’t look at applications myself… I look at decisions. This is crucial, to me. There is a policy which was approved… and I don’t think we should judge that policy before the authority itself has taken a decision based on it. We cannot jump the gun. Anyone can apply for a development permit, any way he likes. But there is a difference between what is applied for, and what is actually approved…”

Is he satisfied with the planning policies, though? On paper, they do allow the sort of density of development we are looking at. And this is what worries many people, not the individual projects themselves. 

“What we need is good planning, definitely. And I’ll emphasise this: Maltese planners need to be intelligent enough; consultations need to be wide enough to include the public, the government, the authorities, civil society and entrepreneurs… all considerations have to be taken on board; and planning must be carried out rationally. Not piecemeal. Any developer who wants to embark on a project must make that project fit into the full picture. That way, it will not be discordant with the surroundings. That’s the direction we should be heading… and we have to work hard to get there. But we can’t be afraid, because fear hinders progress. We have to be conscious and aware of the environment, the infrastructure, etc. That’s important. But we have to also be allowed to work. And our projects have to be doable. There has to be a demand for what entrepreneurs are offering…”

This brings us to the other side of the equation. How ‘doable’ is Malta’s current building boom? I’ve already mentioned fears of the property bubble bursting. How long can Malta carry on increasing the volume of residential units, when the number of people who can actually live in those apartments is not increasing in step?

“The way I see it is this. If property depreciates in value, no one would buy it. Property is only bought – especially as an investment, and especially by first-time buyers – because it appreciates. When there is an economic downturn, or a recession, nobody buys property. The only ones who do are those who can afford to hold onto that property, which they bought at a bargain price, until a sunny day….”

Yes, but isn’t an economic downturn what could easily happen if we carry on oversupplying a dwindling demand? Couldn’t the property boom itself bring about a recession for that very reason?

“What I’m saying is that, according to the planning policies approved in 2006, it is possible to apply to build X square metres anywhere within the building scheme. That is already possible. So are we saying that, because people do what the policies permit them to do, the bubble will burst?’

Some people are saying that, yes... 

“Are they?” He seems genuinely surprised. “Are they saying there shouldn’t be urban regeneration? That, in places like Qawra and Bugibba, we shouldn’t be replacing the ugly buildings there are with new development? Are we saying we don’t have a problem with old buildings, but we have a problem with modern ones…?

I suppose it depends on what you replace them with. If you drop an old town house and build a skyscraper instead, the residential units on the same footprint would go up from a single family to several hundred people. And if you do it a thousand times…   

Chetcuti shakes his head. “No, it can’t work that way. I am convinced that if Malta’s developers built up, in six months, everything that can be built in 50 years… then yes, the bubble would burst. But that’s not what is happening. As things stand, developers look at things from a long-term perspective… they see what can be built, what can be sold. And projects happen gradually, from year to year. It would be a problem only if they abandoned that long-term view, and built a large number of projects that don’t sell… or end up permanently on the backburner.

“But luckily – luckily, I stress – Maltese banks are cautious; Maltese entrepreneurs (many of whom are members of the Malta Developers’ Association) understand the market, and have a good feeling for what sells and what doesn’t. And they have to market the project at application stage, before actually committing themselves to it. Nobody can afford to build a project out of his own money – because the banks are careful not to invest in unsellable projects – without a clear plan to sell it. Nobody has money to invest in loss-making projects. The projects that are going up today, are selling. I would worry about the bubble only if they weren’t.”

The real danger, he adds, is the unlikely scenario of mass default on development loans. “If banks behaved differently, and lent money imprudently, and then the projects they financed failed… the banks and financial institutions themselves would be exposed. That’s when the bubble will burst, but it’s not the case. We must be careful to make that distinction…”

This is another reason, he adds, not to pay attention to the number of applications. “It’s what goes up that counts. I can easily foresee a time – in 30, 40, 50 years – when, yes, Malta will have maybe 15 or so skyscrapers. Those 15 skyscrapers will not have been built in six months; they will have been developed over a much longer period of time. It’s like car importers. When you want to buy a car, you sometimes have to wait six months or so after ordering it. No car importer will import 1,000 cars, keep them in the garage, and sell them slowly over time. They might end up selling 1,000 cars anyway… but only on an individual basis, not because they bought them in bulk. Otherwise, they would go bankrupt…”

To stick to the issue of mega-projects (regardless of how tall): The Malta Developers’ Association represents a number of companies in the construction and development sector… including many that would be considered ‘small and medium enterprises’. Yet we also seem to be living in an age characterised by mega-projects, for which only the largest companies and consortia can realistically bid. Is Chetcuti concerned with the long-term survival prospects of the MDA’s smallest members?   

“To tell you the truth, all these mega-projects worry me. On a level playing field, certain mega-projects wouldn’t happen at all, because they are not doable. It would be a lot healthier for all concerned if the wealth was distributed more evenly, and if new projects were based on a small-to-medium scale. It doesn’t mean the country will never need a project or two of a certain size; but I believe the general approach should be smaller-scale.”

Speaking of national projects, the ‘national interest’ was recently cited as the main reason for the approval of a new private university to be built outside the development zone (ODZ) at Zonqor point. In tandem with this decision, the 2006 local plans were also amended to permit ODZ development, at the discretion of the government.

Does Chetcuti agree with opening up more land to development?

“In principle, I agree that ODZ land should not be developed. In this case, the government prepared a project which – let’s face it – nobody really wanted to do. A university… it’s not the kind of project Maltese developers would usually be enthusiastic about. The question I would ask is, is this project really in the national interest? That’s for the government to decide, definitely not me.

“If it is, the government has to find a way of making it happen. Our position from day one was: it would be best if the project occupied as little ODZ space as possible. And it seems the government made this kind of compromise. But on principle, we disagree with more developments outside the approved zones. There are a lot of areas which, even though ODZ, are already touched by development. When there is need for a project in the national interest, we would prefer the government to choose areas which are already disturbed or committed, rather than virgin land.”

It was roughly at this stage that Chetcuti himself had said ‘Make hay while the sun shines’. He laughs when I ask him whether that comment fits in with the view he has just expressed.

“It was a very popular quote… it is still being repeated today! Yes, I still believe you have to make hay while the sun shines… in the sense that you must seize opportunities while the economy is doing well. When the economy is strong, you have to invest at that moment… otherwise, you’ll end up regretting the missed opportunities...”

So he wasn’t suggesting that MDA members jump on the bandwagon and avail of the loopholes afforded them by the government?

“Well, everything is subject to interpretation; but I can assure you that the spirit in which I passed that comment, and the context in which I was talking, were very clear. The economy is doing well; now is the time to employ those four people you were thinking about employing, to embark on that project you’ve been dreaming about. Now is the time, not later. It is in times of recession that you sit back and observe. Today is not a time of recession: we have an economy the likes of which we have never seen in the last 50 years… at least, in the private sector.”

Meanwhile, the Opposition reacted to the ODZ issue by proposing a two-thirds parliamentary pre-requisite for ODZ projects. Does he agree?

“We were consulted by the opposition on this proposal. I think it is very vague… the opposition tried to take a stand that was popular, but at the same time – though the intention may be genuine – you can’t have a parliamentary discussion requiring a two-thirds majority; then another debate with a two-thirds majority… then one with a simple majority… no, that’s something I can’t agree with. You have to decide in life; either it’s two-thirds, or else you’re just prolonging the discussion so that the end result remains the same anyway. Still, the opposition can always fine-tune the proposal. We made suggestions on that, too…”

What about the implications for the planning process, though? At present, the onus of approving an application falls to MEPA. Doesn’t this proposal wrest that authority from where it should be, and invest it in a parliament made up of political parties that are indebted to big business?

He shrugs. “The reality is that the government – forever and ever, Amen – has always had a hold on the planning process. It is useless to hide behind the authority. It’s always been that way; it’s still that way, and it is difficult for that mentality to change. Apart from the fact that the government always ends up taking the blame for the Authority’s decision, too; let’s be fair.

“When we like, we turn on MEPA; when we like, we turn on the government… again, we have to decide. Either we leave the planning process entirely in the hands of the authority, or else we leave it to the politician in parliament. On a practical level, it doesn’t make much difference. They’re still people. All people make mistakes.

“Personally, I would suggest that the planning process be entrusted to PLANNERS [heavy emphasis]… and we need good planners in Malta, because there is a serious lack. Too few look at planning on a long-term, holistic level. And this is the problem we have always faced: the politician, though he may have the best of intentions, will never see everything, because he’s not technical. He needs the advice of technical experts. Governments, developers, civil society, can all say whatever they like; but on the technical level, it should be the experts who decide.”