How much will you pay to move?

With several market sectors taking a wild battering because of the worldwide financial storm, Maltese real estate agents claim the local property market is remaining surprisingly level – despite local obstacles such as the changes to the permanent resident schemes, as well as the threat of fines for lowering prices.

Salt on the wounds

Property sales were by most accounts actually higher in 2011 than in 2010: but nearly all agents agree  the property value has gone down.

“Looking at the local market, we’re seeing that lots of developers are keen to sell,” Frank Salt, chairman of the eponymous Frank Salt Real Estate said. “Developers have put prices down and are taking advantage of the situation. However, developers selling at lower prices and are caught by the authorities are now having to pay a penalty. It’s crazy!” Salt said.

Due to the Euro crisis and uncertainty within various markets Salt said that such strict regulations cannot be applied to the fluctuating property market and can be extended to the new permanent residency regulations.

“I mean in Malta we have a local property market and markets for foreign holiday homes, foreign temporary residences and foreign permanent residents. A large percentage of our clientele was foreign due to the competitive strength,” Salt said.

Frank Salt Real Estate used to focus on non-EU nationals looking for a safer and more feasible environment like Malta.

“However, the government amended the permanent residency act and imposed higher and stricter regulations which all but halted the market. I don’t know why but the regulations practically stopped the foreign market and left us with the EU market which is down due to the current crisis situation,” Salt said.

When asked if he had any predictions for 2012, Salt said the property situation was looking ‘bleak’ but being an optimist said this will have to change.

“I’ll tell you what’s going to happen in 2012. I think Maltese property market will be good because the demand will come from foreign organisations looking to set up internet relations businesses and the like, it would be more beneficial for the company to set up in Malta,” Salt said.

“But I’m the eternal optimist, and I believe the government will have no choice but to revert back to the way regulations were before because it has basically killed the goose that laid the golden egg when it came to the restrictions on foreign property market.”.

Life and tiles

Real estate manager Tonio Mifsud said that the property market in Malta has also taken a dip due to increased importation taxes on materials such as tiles and cement, resulting in higher property estimates.

But Mifsud said this was not the main issue because even if developers were willing to reduce the price of their properties, they risked fines.

“It’s a big problem for developers to sell properties. If a developer feels comfortable selling the property worth €150,000 at €90,000, the property buyer and seller faces a possible tax fine if a government architect estimates the property to be worth more than it was bought. It happened to me! The laws are affecting the overall property market and estate agents are facing bureaucracy from the Malta Environment and Planning Authority, Enemalta and taxes,” Mifsud stressed.

Mifsud also explained that there were hidden taxes which were not mentioned in the Budget and the bureaucracy was deterring people from purchasing.

On a more negative note, Mifsud said: “I believe it will worsen in 2012 and unless something is done, construction projects will have to be stopped completely. There are a lot of properties on the market but with the new regulations, less people want to buy because of the hidden costs.”

Rising sales, plummeting prices

Specialising in rental properties, Jerome Mamo manager of Simon Mamo Real Estate, predicts that the rental market is set to grow..

“Our company is even employing more people. Over the last five years, rental prices actually increased by 150% because the price fluctuates according to demand. Increased demands mean the price increases because of competition,” Mamo said.

Rental occupancy is currently 80 or 90% according to Mamo and it does not appear to just be flats and apartments

“Just last week, I rented out three villas but it all boils down to location. The price of property to buy then rent hasn’t gone up and it’s pretty balanced. There is so much supply but the competitive advantage is in the location. The property won’t matter if it’s not in the right place,” Mamo explained.

Echoing Salt, Ben Estates founder Bernard Mangion reiterated that property sales in 2011 were better than in 2010 but considered he was fortunate to have a regular customer base.

“But because of the new legislation, foreigners are not buying as much. Our regular customer base is mostly made up of single Maltese persons. Property sales have gone up, but the values have gone down. I’m afraid 2012 will be a tough year and sales will largely be affected by the upcoming elections which I think will stop people buying,” Mangion said.

Northern exposure

On a more positive note, director of Sapphire Real Estate Jane Chircop believed things should improve in 2012 but emphasised that her expertise lies in the northern region of Malta.

“It has been a much slower and turbulent year because of the Euro crisis because people have to be much more cautious. The trend we’re seeing is that people are turning to older houses because of more spacious accommodation. People are looking for more character and are choosing old houses over apartments because newer designs are crammed,” Chircop explained.

Referring to the permanent residence scheme, Chircop said it was not helping business but confusing buyers and resulting in many foreigners giving up and leaving the island.

“People are more confused and it is more chaotic for people to relocate because they have to do so through renting and foreigners end up leaving the island. It takes a long time and the new system is proving to expensive,” Chircop said.

Chircop said that property values in 2011 were stable in the north region but problems were being experienced because of government architects.

“This thing with government architects is just nonsense. It is just inflating prices. The government needs to implement a holistic plan to regenerate and revive the economy and the property market along with it. People need to understand the property is a solid investment because you have control over it and can manage it yourself. Even if you sell your property at cost price, owners will get their money back,” Chircop explained.

Permanent hindrance

Director of Belair Real Estate Ian Casolani said that while 2011 was actually a better year for Belair than 2010, he reiterated certain remonstrations.

Casolani explained that the right properties which were priced well, continued to sell and some opportunities came about for ‘seasoned investors’ to take advantage of. But the Permanent Residency scheme severely hindered activity.

“The final 12% withholding tax, which must be applied if a person has owned a property for over seven years, prohibits certain people from being able to sell as they would be selling at a loss and being taxed on it! It is a ridiculous process that governs the way valuations are carried out by government appointed architects,” Casolani said.

Evaluations by architects are sometimes conducted months after the final contract would have been signed by parties involved in the sale.

“Nowadays, this does not even take into consideration how property prices in certain segments have dropped and in other cases certain sellers are pushed to drop the price due to them being in a distressed situation,” Casolani stressed.

Casolani said that the issue had been raised by several groups but nothing was ever done about.

“2012 will be another challenging year and certain sellers or developers who are distressed or over exposed might struggle to hang on, but on the other hand it will continue to be a buyer’s market hence providing certain opportunities for those who are in a position to make the most of them.

“Malta as a destination still remains very attractive to numerous foreign nationals looking to enjoy a safe lifestyle and if the government tweaks certain rules we can possibly start attracting them back to our shores. This will surely be helpful at a time where countries around us are all crying out for new foreign investment,” Casolani said.

Sullivan’s travails

Director of Fine and Country Real Estate and SQL Real Estate Services Joseph Sullivan was more sober on matter and said that while it was not great, the property market was not as bad as expected.

“Although we have not seen any increase in 2011, I personally feel the situation is not worse, but definitely not better. We need to be realistic and simply look around us and all the problems Europe is facing and will in all probability continue to face in 2012 to understand that the problems we are facing are the same problems being faced in Europe and around us,” Sullivan said.

Contrary to other agents, Sullivan said it was easy to blame the worldwide financial crisis but said the main issue is that property prices did not drop to the level that respects the current economical situation.

“Furthermore the new Residential Scheme which was introduced a few months ago has definitely made it almost impossible to attract foreign investors to Malta, as we had done in the past. Again i believe we are not competitive compared to our neighbouring countries when it comes to property prices, taxes and residence schemes,” Sullivan said.

The SQL director also agreed that the government was right to amend the residential scheme but “we have now gone from one extreme to another” which put Malta at a greater disadvantage compared to neighbouring countries.

“Well, if I had any predications I would definitely be very cautious on what I would have to say, but in all honesty, I do not have any. I simply believe that Malta has a lot to offer and if the government where to revise the New Residential Scheme, we could be back in business and have a better 2012 than we are expecting,” Sullivan said.

Remax reloaded

Focusing on the central region of Malta, franchise owner and manager of Remax Central James Busuttil said that volume sales remained practically the same in 2011 as for 2010.

“We have marked a slight increase this year yet we sold a smaller number of units to achieve this. The average price of property sold has increased by 4.9% on last year sales. Having said this we do note that the price of three bedroom apartments smaller then 110 square metres has not only dropped significantly but in fact become rather difficult to sell,” Busuttil said.  

Having realised this at the beginning of the year, Busuttil said a complete revision of their marketing strategy had to be made.

“We focused our attention on larger units which in part accounts for the 4.9% increase in the average property price sold,” Busuttil explained.

Another factor that played a part in the increase was that a number of home owners realised that now is a great time to up size as the difference between the price of their existing home and that of a larger home is smaller now and more affordable.  

“In other words, they sold theirs for less and purchased a larger home for less. Because homes in the central areas offer more square meterage to the Euro a number of people have moved from other higher priced areas into the central areas gaining more space for their Euro,” Busuttil said.

Echoing selling trends noted by Chircop, Busuttil said there was refreshed interest in houses of characters and townhouses which had been a declining market until 2011 while interest in smaller apartments has decreased.  

“We note that generally across most of the central areas homes offering 120 sq.m plus of living space retained prices from last year and smaller homes have been rapidly decreasing in value. This we feel is reasonable seeing that during previous years the trend had been to build smaller and smaller units and this was never popular with buyers who found that their budget could only allow them a home too small to raise a family.  The correction in market prices seems to have resolved this issue,” Busuttil said.

In his prediction for 2012, Busuttil expects the same trends to continue because buyers are looking for decently sized homes at a decent market value.  

“From our point of view as agents we intend to continue to enhance the marketing tools at our disposal and educate our sales associates to provide the discerning buyer with a suitable home,” Busuttil said.