As construction profits climb, average wages take another hit

Construction is booming in Malta. But it is not just the largesse of the small island’s Planning Authority that has whetted the appetite of the expanding construction and real estate sector.

While Labour’s election in 2013 started a reversal of fortunes for the hungry industry, in three years of its now constant growth it appears that lower wages and lower energy prices have been fundamental to its economic success.

The Central Bank’s latest review suggests that in 2015, the construction and real estate industry’s €138 million wage bill rose by €5.1 million – €1 million in real estate alone. Both sectors jointly account for 6.6% of Malta’s jobs, and now employ over 12,850 workers: over 93% are in construction.

But the rapid growth in revenues for construction is reflected in the availability of a growing pool of foreign workers who are being employed at lower wages – the fourth consecutive year in which average salaries fell.

Both construction and real estate retain a considerable influence on the Maltese islands, not least due to their environmental impacts, CBN says

“[It] has put downward pressure on the average wage in the construction sector, with compensation per employee in this sector declining for the fourth consecutive year. The construction sector, moreover, benefited from lower energy costs following the cut in electricity tariffs for businesses during the year. The resulting savings boosted profitability relative to wages,” the Central Bank said.

Foreign workers account for 18% of the workforce in the real estate sector, and for 13% of that in the construction sector, as against 10% in the overall economy.

Indeed, the CBM continues, average wages per worker remain low when compared to Malta’s national average.

So while in 2015, the average employee pocketed a total of €22,421 in gross earnings, a construction worker was taking €15,476 in construction while the real estate worker was taking €18,064.

The Central Bank suggests that this large gap in the construction sector could reflect relatively low productivity, and in turn made the job less attractive for Maltese workers, encouraging operators in the construction sector to take advantage of an increased supply of foreign labour.

Business is booming

Malta’s construction recovery, aided by large-scale projects encouraged by Labour’s pro-business approach to the sector, is evident in the data coming out. In part, the demand has been bolstered by the first-time buyers’ scheme, planning relaxations, and schemes targeting high net-worth individuals such as the IIP.

Following the decline in 2012 as the international financial crisis dampened demand in Malta, in 2015 the construction sector accounted for 12% of the total 88,000 business units in Malta.

Both construction and real estate retain a considerable influence on the Maltese islands, not least due to their environmental impacts. Both sectors represent a not insignificant 9.7% of what the Maltese produce, €322 million in construction and €422 million in real estate. And still, this rate of growth – almost up by 10% – is nowhere near what it was in the 2000s.

Both construction and real estate retain a considerable influence on the Maltese islands, not least due to their environmental impacts

The renewed confidence of developers in Malta is marked by surveys carried out by the EU’s statistical arm: operators here report no obstacles to production in construction (30%) compared with 48% in the euro area. What is less prominent are complaints on labour shortages, mentioned by 29% of Maltese respondents compared to 5% in the euro area.

The other problem developers find is financing from banks: the effects of the financial crisis and the subsequent tightening of lending rules persists even despite improved profitability for the sector.

The share of these loans fell to 32% of overall loans in the non-financial corporate sector, compared to 37% in 2010. On one hand, banks are still collecting money owed to them on outstanding loans. But the Central Bank says they are trying to reduce their exposure to the construction sector. Anecdotal evidence, the Bank says, indicates increased recourse to new forms of external financing, “including pre-financing through prospective buyers and a greater use by larger companies of bond issues and private placements of securities.”