No sign of any bubble bursting yet... | Kevin Buttigieg

It has variously been pointed that Malta’s property market seems to defy the ordinary laws of supply and demand; that decades of price increases do not reflect the actual market reality on the ground. Kevin Buttigieg works in that reality on a daily basis. Does he share the concerned that the so-called property bubble might burst?

My opinion of the property market in Malta is that it will stabilise at the most, as our recent history has proven time and time again.  This [Remax] is a company which covers the market from A to Z: we are involved in every sphere of the real estate industry here... we have 27 offices in various locations, and we’re in the process of expanding. The fact that we’re expanding, in itself, already proves that we don’t believe there is any question of a bubble bursting. But then, it depends on your definition of a ‘bubble’. For me, it means that suddenly, real estate prices drop by around 50%. That’s what I would call a bubble. 

In some places that has in fact happened, and prices have been known to drop by more...

Personally, I don’t see that as anywhere near possible in Malta at the moment. Now, I might be a bit bombastic saying that, but the truth is that, from what we’re seeing across the board: the supply is limited; the demand is there, in all sectors. We lead the industry in first-time buyers... in individual home sales; in upmarket sales; in the so-called high-rise market... and we are very involved in marketing Malta overseas. The response we get is quite encouraging, to say the least. Actually, it’s a bit scary, because we have a feeling that with the Brexit shadow on our doorstep... with the influx of the IIP clients, and the MRSVP (residency programme)... the financial services, oil and gas industries, the aviation industry, not to mention the new university and private hospitals coming on stream very shortly... we might not have enough to meet the demand.

But isn’t this part of the concern? Those influxes might be a reality today, but there is no guarantee that the trend will persist in future. Could it be that our property market is too reliant on an economic scenario that is liable to change?

There is another myth in Malta: that the real estate market depends on the gaming industry. In my experience that’s just not true. For one thing, the demand created by gaming is 90% of expat employees renting, and 10% of them buying. From our perspective, we do a lot of business with the gaming sector just the same. But by no means is the gaming sector the majority of our business, nor even close. At certain periods of the year, we are doing better with the financial services sector, oil and gas, aviation and many other sectors. We’re renting more office space to aviation companies; or people setting up software development companies, or other small business. Besides, the fact that we’ve cemented quite a few deals over the past 12-18 months that suggest that these sectors are not planning to leave Malta any time soon...

But that might change, subject to external factors over which we have no control. If the EU agrees on tax harmonisation, for instance...

Something like that might make a difference, but tax harmonisation, if it ever happens, is years and years away. The fact that these people are committing so much investment here suggests that they don’t think it will happen. As for me, I’m not a politician. What I will say is this: I don’t believe tax harmonisation will ever happen; and if it does, it will not be a good thing for Malta. If you go to America - and I believe the EU was a copy and paste of the US – you will never hear any politician talking about ‘California tax’, ‘Florida tax’, ‘Michigan tax’, ‘Las Vegas tax’... every single state has their own tax system. They run their position as they deem fit. In my opinion, Malta set up a tax system that suits its needs. To be fair, it’s not as though the Maltese public is making any ground: our income tax at personal level is reasonable but our corporate tax is amongst the highest in Europe...

Not for everyone, it seems: Malta offers a very favourable tax rebate system for foreign companies investing here...

Yes, that’s true. We’re opening doors. But when we’re opening those doors, let’s not forget that the people coming in are filling our apartments; they’re filling our hotels. They’re buying groceries, leasing cars, taking out insurance... they’re eating at restaurants, bringing their friends and family here on holiday. The economic benefits are huge, especially for a country that doesn’t have any natural resources. This is the way a country like ours can survive. Now; I believe that our regulatory bodies have been praised many times... our banks just got an upgrade to Grade A... the fact is that, yes, the property market is moving; prices are going up across the board.

Some might argue that that is part of the possible problem, on two levels: one, because of social considerations, and two because inflated property prices may contribute to the ‘bubble’ effect... 

I am concerned about the social side myself. We may be heading towards a situation, in about 5-10 years’ time, where many locals will not be able to afford to buy their own homes. Because the rise in prices is not just in Sliema and St Julian’s; or just on seaside properties. It’s across the board. Unfortunately, our biggest stumbling blocks at the moment are: permits – I believe permits should be straightforward, and come out much quicker than they do, so that people can plan ahead properly. Two, I’m concerned about the way banks operate in Malta...

Traditionally, Maltese banks are very conservative. Some might say it is their caution that protects us from a market crash...

I would say they are extremely cautious, yes, but also extremely unreliable and very bureaucratic; and in some cases very unethical, and in my opinion sometimes even unprofessional. You cannot lead a young couple on, knowing they have a promise-of-sale agreement for four or five months, and keep telling them you’re going to issue the sanction letter... and the letter never comes out, or comes out on the day that they’re supposed to sign the contract. Then it’s all in the hands of the person selling the property, whether he decides to extend the contract or not. Technically, he doesn’t have to. He can say, ‘listen: you didn’t make the date, and meanwhile the property has gone up by €10,000. I’m going to sell to someone else.’ And that poor couple is left without a home. This is happening on a daily basis; it’s an unbelievable uphill battle.

Does it happen across the board, or only with small investors?

It happens with the first-time buyer market; with the second-time buyers; with the rental investment market, with the commercial market... and it happens to reasonable people who qualify for bank loans.  But not all banks are as bad as each other. There is basically one particular bank which should fire all their risk management and high end managers, as they aren’t a bank... they are just an institution. They are closed for business; they literally don’t want to do business with anyone. It’s incredible, and believe me, I know multi-millionaires who have had problems with them and moved their business elsewhere.  This irks and scares me as it affects the property market.

Coming back to the issue of permits taking too long... there were reports recently of development projects that have not yet been granted any permits, but which are already being sold on the market...

No, that’s a misinterpretation. The reality is that this happens all over the world. There’ll be a developer interested in a project, and he will take a segment of the project and issue a public call for expression of interest. It’s not the same thing as selling the property. What happens is that people put forward very small deposits, proportional to the value of the property, to say; ‘yes, I‘m interested’. It’s called a ‘reservation deposit’, and just for you to know, it’s worth as much as the toilet paper you wipe your ass with. Even though the deposit has been paid, any client can simply send a letter through his lawyer – in most cases he won’t even need to do that – saying, ‘I’m not interested any more’, or simply, ‘the permits are taking too long and I want my deposit back’. And they get the deposit back. That’s all it is: an expression of interest. And I can confirm that there is a lot of interest being expressed right now. People are interested in investing in these development projects. What I’m concerned about is that we have to start planning ahead for the infrastructure...

I was coming to that. Can Malta’s infrastructure cope with the amount of projects currently going up... not to mention those planned for the future?

I’m very concerned that we have a huge opportunity with Brexit - and believe me, it’s a huge opportunity for all Maltese: not just for us in real estate, but also for young people at university, because if Brexit companies move here they will be able to get better jobs with better pay. The economy will grow. The type of people employed by these companies will be good to have on the island. Not that anyone’s a ‘bad person’, mind you... but you know what I mean. It can only improve the country. But then, you read comments about how ‘we don’t have the infrastructure’ to accommodate them. My response to that is: look, we have this huge window of opportunity... but if we’re going to wait because ‘we need to fix the infrastructure first’... then we’re going to lose that window... 

That sounds a bit like a Catch-22 situation: the infrastructure is needed to sustain that sort of economic growth. Yet we would lose the growth if we delayed to fix the infrastructure...

My point is that the infrastructure can be upgraded, if we start planning from now. If you look at Toronto, which is the fastest growing city in the world: it has an infrastructure that was designed for 2 million people. Today, Toronto has a population of 7.8 million. They need to upgrade their infrastructure, too. And they’re doing it. What we need is a plan for upgrading the infrastructure over the next 10 or so years. 

But that’s not what’s happening. For example, MEPA brought over an expert who said that without mass transit public transport systems, we shouldn’t be talking about highrise at all. And that was a couple of years ago: since then, traffic has grown considerably worse...

It depends on whether you consider Malta as a country, or a city. In terms of size and dynamics, I’d say it can be compared more to a city than a country. I’ve been to seven different European cities in recent weeks. Every one of them has traffic problems. I hate to say it, but their problems are much worse than ours. The difference is that, in other countries, you don’t find a van blocking the road because he’s delivering two bottles of water to a shop. You don’t have cranes with a bunch of idiots directing traffic. They don’t allow five cranes in the same road on the same day, etc. etc. You won’t find any of that, but they still have serious traffic problems. So if they were like us, they’d probably be 20 times worse.   To me, that shows we have the wrong people taking decisions. It’s a serious problem. I honestly believe half our infrastructural problems are in our own brains: we created them ourselves. Because if there was someone who actually knew what he was doing, and started planning from now, we could ease a lot of pain... 

That leaves the other half of our infrastructural problems: the half that is real...

With that half, I am in full agreement that something has to be done. Just take a walk from Portomaso here all the way to Ta’ Xbiex. Leave out Portomaso itself, because it’s a private entity and well-maintained... but all the rest: we don’t have one piece of paved tiling that isn’t cracked or chipped. We don’t have one railing that doesn’t have rust. We have wires sticking out of absolutely everywhere. It’s a complete disgrace. You might think these are just cosmetic issues. But if you ask me, we should start with the cosmetic issues, then tackle the big infrastructural challenges as we go along.

On top of infrastructural concerns, there is also the argument that we are not utilising the existing housing stock to its full potential. This is particularly relevant to the rental market: a large number of apartments currently stand vacant, and – the argument goes – by enticing them to be utilised, the supply would increase and stabilise price inflation. Does he agree?

The claim that we have 70,000 empty apartments... sorry but it’s bullshit. We don’t have 70,000 empty properties. We don’t have any empty apartments at all. If it’s a priced property, it sells...

But those vacant properties are not ‘priced’; they’re not even on the market...

That’s my point. They’re not on the market, and do you know why? Because there’ll be a relative in Australia who doesn’t want to sell. Or there are problems with the MEPA permits; or ownership issues. And then, there are also ‘summer residences’ which are rented out but not declared. I mean, come on, the obvious is there. So for someone who’s against the property market to come out and say ‘there are 70,000 empty apartments’... to me, it’s a case of throwing mud. The facts are different, and anyone who looks will see this. Not that I disagree about doing something about those unregistered rental properties, mind you. As far as I’m concerned, people who don’t register their rental income should be thrown in jail. Why? Because the tax rate is only 15%. Finally, after 15 years of real estate agents telling both governments that it should be done... we were very elated and happy that, two years, ago, the government brought in a 15% straight tax rate. Before, you ended up paying 50% of your earning to government, between 35% tax, licence fees, agency fees, condominium fees, etc. The system was just not fair. But now it is. So yes, there should be severe consequences if this is not adhered to. But in a nutshell, the property market is looking very stable and the signs are prices will keep increasing for years to come, as the demand is definitely way ahead of supply.  Malta boasts a lot of advantages which people look for such as our weather; that we speak English, our tax benefits, our way of life, etc. Sometimes we all seem to forget we live in a great country!