No property market 'bubble' in sight, sector pundits say

Malta’s property market isn’t going through an economic “bubble” cycle, experts in the area have said, but the sector is heavily tied to the economy’s strength and sustainability, and faces risks in this respect.

Speaking at a conference on the rental market on the island, organised by the Malta Institute of Management, a number of professionals in various aspects of the property market also underlined the importance of the government assisting those who are unable to afford to buy or rent a place to live in.

According to the available data, the rental market in Malta is “intrinsically” linked to foreign direct investment, Kurt Xerri from the University of Malta’s civil law department said.

“I don’t think there exists a bubble right now,” he said, “But there is a risk, because FDI is very vulnerable to exogenous shocks, so it all depends on the health of the economy.”

Xerri highlighted the need for “stronger government involvement” in providing affordable housing, noting that in cases of people who can’t afford to pay the current market rates – because their income has remained unchanged, while property prices are increasing – it is the government which should cater for them. “It seems the private market is not providing for their needs,” he said.

E-Cubed Consultants executive director Gordin Cordina also said the government has a key role to play when it came to affordable housing.

“The government has to address poverty in significant ways,” he said, “I believe that before we had a poverty problem which was masked, because people were able to rent very cheaply. But now it is much more evident, because of the higher costs. The issue needs to be addressed through both the housing market and the social security system.”

“We cannot allow the real estate market in Malta to fail, as it is too big, providing 70% of household wealth and around 15,000 jobs,” he underscored, “The risk of implosion in the market is low, but there also exist risks to economic activity and to population expansion, which are the main drivers of growth in the property market.”

Cordina said that a well-functioning rental market is essential to enhancing the economic potential of the real estate sector in Malta.

Overdependence on occupier ownership, he said, is not healthy in terms of the optimal use of scarce land resources. “There should be a balance between those who own their home, and those who rent,” he remarked.

Foreigners renting high-priced properties

Representatives from the estate agency sector too agreed that the government had to step in to help those who couldn’t afford to buy or rent property.

When it came to renting, Philippa Tabone, Frank Salt head of letting, said locals who rented generally sought places in the south of the island, where prices are cheaper.

“Locals can’t afford three bedroom properties in St Julian’s – they look for one bedroom places in the south. They need help, and something has to be done to tackle the situation,” she emphasised.

“Foreign ex-pats are interested in renting properties which usually start at €700 a month. Any locals who can afford those rates would usually buy rather than rent,” she said.

Sandro Chetcuti, Property Malta Foundation chairperson and Malta Developer’s Association boss, also acknowledged that there were sections of people who couldn’t keep up with the property market.

“This is nobody’s fault,” he remarked, “We don’t want anyone to fall back, and we know that the government is under pressure to cater for those in society who are more vulnerable”

He said that the private sector was offering proposals to the government on how to address the situation, including a public-private partnership.

“The government has to find solutions to social and other problems in the country, which aren’t the fault of this administration, but which have been a long-time coming.”

Remax estate agent Kevin Buttigieg, however, disputed the fact that property market prices were increasing at a high rate.

“When you look back 20 or so years ago and see the rent prices at the time, and the average salaries, the costs would take out a bigger chunk of a person’s pay than they do now,” he said.

“I don’t think there’s any 'bubble' in sight, and prices aren’t going up at rates as high as some people think,” he added.

Recent increase in prices "not exceptional"

Compared to the 2006 to 2008 period, the recent growth in property prices "is not historically exceptional", economic consultant at E-Cubed Consultants Stephanie Vella said, lending some credence to Buttigieg’s argument.

“In the 2006 to 2008 period, things were much more volatile than in the current 2016 to 2018 situation,” she said “In the former period, the increase in contract prices was of about 17.5%, now it is 5.4%.”

“Also, in 2006 to 2008, economic growth and unemployment rates stood at 3.1% and 6.4% respectively, while now the figures are 5.9% and 4.4% respectively.”

“And when it comes to population growth – which drives prices up – the rate is now much higher, at 10.5%, compared to 2.6% ten to twelve years ago,” she noted.

Time for policy-makers to act

Nationalist Party MP Marthese Portelli said that while things appeared “good and rosy” in the property market, society’s vulnerable groups couldn't be ignored.

“There are people who cannot afford the current rental prices. As Cordina put it, in the past poverty was hidden, but because of how the property market has expanded, that poverty has come out in the open,” Portelli said.

“It is our role as policy-makers to find the right balance between the lessors’ rights and the right of tenants,” she said, “There’s nothing wrong in renting rather than owning a home, but we need to make sure that the prices being paid are reflected in the livability of the premises and the surrounding environment.”

“I think the policy-maker has to now take stock and think ahead – we need to keep the positive and address what is negative,” she asserted.