The vacant property myth

Those who generalise about developers being a greedy lot also believe that they are stupid enough to invest without any chance of recouping their investment, let alone the projected profit

On Friday, 11 October, the Kamra tal-Periti organised a debate on vacancy in Malta's residential areas under the intriguing title 'Empty Spaces... abandoned places...' Before the participants split into a number of working groups there was a presentation by Michael Pace Ross, Head of the National Statistics Office, in which he gave some interesting and hitherto unknown aspects of the figure of 72,000 vacant dwellings that resulted from the census made two years ago.

It is interesting to note that this figure is being continually touted by environmental groups as enough reason for all development permits to be refused outright with no questions asked; and the number of times I have seen this argument in the comment columns of news portals carrying some news about building permits or other MEPA issues is beyond counting. Everybody, it seems, assumes that there are 72,000 residential units ready for habitation and available for purchase on the market.

Indeed I have often heard the argument that 72,000 units are equivalent to six times the number of family units in Birkirkara and that therefore in Malta we have the equivalent of six Birkirkaras in empty housing supported by infrastructure - roads, drainage, water and electricity - that was constructed and installed in vain and at huge expense to the Maltese exchequer.

I have never believed that the situation is actually like this, even though I knew that the census exercise is carried out professionally and in painstaking detail. My disbelief was supported by three reasons. The first being personal experience: the large figure of 72,000 would surely be reflected in my everyday practice as an architect. I have been practising architecture for 45 years - with the exception of a nine-year stint when I had ministerial responsibilities - and surely such a dramatic upsurge in vacant property would have led to tangible effects in the exercise of my profession. I cannot sense any of the effects that one would expect if these numbers were correct.

Even more telling was the situation in the property market. After an artificial spike in prices as a result of particular circumstances in the period just before Malta became a member of the European Union, the market calmed down and returned to a more sane level - practically a consistent plateau. If the market was really flooded with 72,000 vacant units for sale the property market would have collapsed completely. It did not.

Moreover, there were still people investing in development because they sense that money can be made from such ventures if planned carefully and judiciously. No one is so mad as to spend money in an investment that is doomed to fail. Those who generalise about developers being a greedy lot also believe that they are stupid enough to invest without any chance of recouping their investment, let alone the projected profit. The contradiction is obvious.

Although there have been foolish developers who rushed into ventures at a time when they 'felt' - against all logic - that property prices would keep on appreciating at the galloping rates we were experiencing over 10 years ago, many have learnt their lesson. Those who are venturing in development nowadays do so after realistic marketing studies - rather than recklessly on the hunch that anything sells, as used to happen in the past. This meant that the property market stabilised rather than collapse, as the case would have been if the 72,000 figure represented the actual number of units available for house hunters.

In his presentation - reported in The Times last Wednesday - Mr Pace Ross went into some detail on how the enumerators did their job on the field. Each had a number of units from which to collect the information needed in the census. Moreover, people were asked whether they had a summer residence over and above the house in which they resided. I need not go into the definitions of what constitutes a household for the purposes of the census and other definitions that were mentioned - all important so as to ensure that the collectors of the data act in one consistent manner.

The long and the short of it is that the number of summer residences is practically 50% of the number of vacant properties - some 33,000, in fact. At the same time only half the 72,000 vacant dwellings were listed as in a good state of repair, and this is uncannily almost equal to the number of summer residences!

The enumerators indicated also the state of the vacant buildings from a visual inspection made summarily on the ground. Nine percent were recorded as being in a shell state, that is, units with the masonry and concrete elements only and otherwise still unfinished. Thirty-one per cent of empty houses were indicated as needing minor or moderate repair, while 10% were listed as dilapidated or in need of serious repairs.

What this means is that the real figure of vacant residential units that are ready for habitation and are on the market is around 15,000 - less than 25% of the 72,000 figure so many like to tout.

In other words, the myth of what the number of 'vacant' properties means has imploded.

Besides this there are categories of vacant units that the enumerators could not surmise from a superficial external inspection. The data that was collected from the occupiers of the inhabited houses that the enumerators visited cannot be matched in the case of vacant houses that were only subjected to a simple visual external assessment. From my experience, it results that there are a number of substandard units that are unacceptable for habitation in this day and age.

Just after World War II, 65 years ago, two rooms, a small anteroom used as a kitchen, followed by a WC made up an acceptable residential unit. Many towns such as Gzira and Hamrun are full of such ground-floor tenements with separate units in the overlying floors. These units can be converted into garages or small local shops or merged with the overlying tenements, as today they are considered to be substandard. They can never be sold for habitation on their own.

Other houses are subject to multi-ownership and have been practically abandoned as a result of issues between different heirs owning small fractions of the properties.

A further in-depth study of such vacant houses is needed, so that one can arrive at the sort of categorisation of the different types of vacant residential units that would give a clearer picture of the situation.

This can be done by the NSO by scientifically choosing an adequate sample of vacant houses from those so identified by the census enumerators and following this up with a detailed study of each unit in this sample. The result of this exercise can then be used to extrapolate the real situation overall.

It is important for MEPA and government to know the actual facts about this issue. There is no room for hunches based on emotions. In spite of the good intentions of many who criticise development permits across the board, making assertions based on a misinterpretation of the facts can only serve to depict inaccurately a situation that is at best warped and inexistent at worst.

Michael Falzon is Chairman of the Malta Developers Association and a former Nationalist infrastructure minister

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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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One thing that is not said is how many of the 72000 properties are owned by members of the Malta Development Association and are actually vacant. That would have been interesting to tell us Mr Falzon. Also whether your members will be willing to pay property tax as in other countries. That would be an effective tool not to sit on overpriced properties which inflates the market price unneccessarily. Then tell us your facts
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It seemed that the NSO has corrected down the ‘second home’ figures substantially so that the euphoric optimism of Michael Falzon’s rhetoric has been virtually neutralized. This brings us back to the original dilemma that the glut of vacant properties is hardly a ‘myth’, as the Developers lobby would like us to believe, but still a show piece of uncontrolled speculation. Without going into the merits of greed and sustainable profits, it is inconceivable that the construction industry is still resisting a metamorphosis to adapt to the new realities and evolution of our society, however painful as it may be.
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Your analysis of the post property boom years is quite accurate. What is lacking is what lead up to the onset of the so-called boom, and the resultant speculative binge, that influences the market to this day The genesis began with the government's prolong borrowing spree. Extra funds were injected into the economy with basically no avenue of local investment able to absorb that quantity of stimulus. When that source eventually began to dry up, the government initiated repatriation of foreign accounts. A scheme were no questions were asked as to how the money was initially invested abroad. This second infusion aided in prolonging the speculative bubble. This was all occurring when Malta still had currency controls and thus limited access to alternative investment vehicles off-shore. The cessation of the building plot grants by the government contributed to a reduction in the supply of building land leading to higher prices in that sector. As with every bubble, towards the end, everyone became a self-styled developer resulting in an ever increasing supply of buildings, usually in the form of unfinished flats. Since what can't go on forever doesn't, reality finally hit the Maltese market as it had in countless of other markets.
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truthBtold, you are way, but way over the top in your assessment of this sector of the economy. You are mistaking it for financial services!!
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This is an alarming BLOG that makes you aware of who is in charge and their mentality of housing and transportation planning. Far be it from me to comment on such gibberish assessments but then again one has to note the writer and what he stands for. Maltese housing planning has been riddled with fraud and corruption for the last 20 years. The housing units are not built to serve the inhabitants but rather the criminal element that wish to use them as a money laundering scheme that hides illegal gains and avoid paying taxation.
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'Moreover, there were still people investing in development because they sense that money can be made from such ventures if planned carefully and judiciously'. Lol yes planned carefully and judiciously. Really! Nice try ! Poor ickle developers unfairly tarred are they? So why are developers continuously churning out tiny boxlike abodes in the hundreds in blocks without even a square meter of open space for those unlucky enough to live in them to access any air. Please your apologetic piece is what it is apologetic fluff. lets put it this way Maltese architects except for the very exceptional few( and these are indeed national treasures being so scarce) are complicit in churning out these horrible constructions. These should be named and shamed as is the case with other professions. As are developers who insist on scarring our environment. The University of Malta's architecture department should also be put In the dock because it failed to act early enough to stop the problem. Shame on it given its graduates the remit to produce horrors that suck one's soul away let alone aesthetically improve urban spaces or rehabilitate the Maltese Countryside.
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Dr. Falzon, in my opinion you based your argument on progress of how we used to live and how we should be living. Well Sir, is it progress when I remember a few years back when passing Spinola bay there was nothing but country side for all to enjoy, Sliema Front was a picture taking reference of every house in the area. The list goes on all over the island. What have we now thanks to speculation is a jungle. One of the speculators when young I used to buy him hobz biz-zejt (he was coming from a poor family) today when he is in Malta and we meet he do not even say hi. Most of the time he is cruising on his yacht. The point is those advocating progress are they doing so for to good of us all or to fatten their pockets?
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"Michael Falzon is Chairman of the Malta Developers Association" So you don't think this might have any bearing on your, shall we say, inexplicably optimistic figures and pro-developer stance in this article Perit Falzon? Those figures you presented are bogus. If 72,000 is a lot it sure as hell isn't 15,000 as you claim. 50,000... even 40,000, 30,000 or 15,000 (or even 7,200!) - they're still too much, and pooh-poohing this fact is quite worrying.
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Dear Perit, (1) The vacation home phenomenon was popular many years back. I feel that it has lost its lustre with the newer generations over the past 10/12 years. I would imagine many of those people that declared their proposed speculative property as a "second vacation home" @ NSO would have done so in order not to attract tax attention. We do know how info, here in Malta, tends to flow out of restricted quarters, no matter how tight the lids are closed. (2) "property price collapse". NO this would not have been allowed to happen as most of the local banks' assets and collateral is tied with property and its price. Therefore it would be inconceivable for the banks (and Governments) to force a collapse, unless they wanted to go down with it. So they simply tightened credit, and are still hoping for a gentler simmering down of the blow out. (3) One must admit that there are simply too many properties lying about empty (not mentioned commercial property), although not necessarily desolate (refer to many Gozitan "holiday" apartments). The time has come to drum it into conservative Maltese heads that the price of property can and WILL go down. Invest somewhere else!!
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Even if there are only 7,200 empty units one has to take action let alone a small multiple of this. Time to help those who need to upgrade empty old house hold.
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What happened to the government's proposal in the last budget that the CIR will accept the architect's valuation presented to the banks (in cases of home loans for purchase)in lieu of sending its own architect to establish the market value of the property upon sale?? Till todate this has not come into effect!! Is it a case of a u-turn??