[WATCH] Malta property market waning, construction industry told

Malta property market waning, new report finds

The property market has slowed down, according to a KPMG report that warned shoddy works risked giving Malta a reputation as a destination for working-class migrants.

The report noted that in the high-end property market, the quality of construction and finishing standards often failed to meet the expectations of high net worth individuals.

High-end developments were not performing as well as expected, the report says.

The Construction Industry and Property Market Report was commissioned by the Malta Developers Association and published during a seminar at The Excelsior Hotel in Floriana on Wednesday.

But the slowdown in the property market did not seem to worry operators, with several clarifying this was simply the industry returning to normal levels of demand after a period of stronger-than-usual performance.

Rents under €1,000 per month in short supply

KPMG found that rental properties priced at under €1,000 a month are in short supply and properties at under €600 a month are very limited.

“This has led to an increase in property sharing and has also driven some operators to provide lodging for their foreign employees at discounted prices or at no cost,” the report reads.

Operators who were consulted were of the opinion that there is an excess supply of properties in the mid-range, typically priced between €1,000 and €2,000 a month.

The Construction Industry and Property Market Report was compiled by KPMG and commissioned by the Malta Developers Association

“One suggested reason was that many properties were priced at approximately €1,300 per month to meet the requirements of the Individual Investors Program,” the report says, adding that high-end developments were not performing as well as expected.

“From a demand perspective, higher rents feeding into higher wage pressures on employers negatively impact Malta’s attractiveness to foreign investors and workers.”

According to a 2016 Central Bank of Malta assessment on the Maltese housing market, higher market rental rates only affect approximately 2% of the Maltese population. However, if property prices continued to rise at levels outpacing increases in income, some segments of society could be priced out of the market. 

Some operators told KPMG that the construction and finishing standards applied to the upper end of local properties often fail to meet the expectations of high net worth individuals.

Some claimed that Malta is quickly building a reputation as a destination for working-class migrants and tourists as a result of local tendencies to accept compromised quality as a means of cutting costs.

Banks have played a role in stultifying the housing market

Industry operators said that local banks too have played a role in stultifying the potential of the housing market since some, they claim, were downright difficult to access.

“Industry operators criticised the local banking sector for the bureaucracy and challenges being experienced by non-EU residents when carrying out banking in Malta. Views expressed by the major banks acknowledged that foreign nationals may sometimes be subject to due diligence checks that take longer to be processed,” the report reads. 

The report cites other potential reasons for the slowdown, notably the presence of rogue developers and lack of enforcement, with construction sites often experiencing fatal incidents, and the risk of a housing bubble when house prices are no longer necessarily reflecting economic fundamentals.

MDA President Sandro Chetcuti

Chairperson of Malta Property Foundation Sandro Chetcuti told MaltaToday that the property market had since 2013 grown “too fast”, and that the slowdown is not necessarily a sign of bad things to come.

“The number of people that this industry employed in 2017 was 34,000 people. Now it employs 43,000 people. We need to be responsible when saying things like we can carry on without this industry,” he said at the launch of the report.

Chetcuti did concede, however, that construction industry operators were facing the issue of lack of dumping grounds for construction waste.

“This is not a new thing. It has been going on for years, but it needs to be addressed as quickly as possible,” Chetcuti said, adding that the construction industry might face an imminent paralysis.

Minister apologises for slow pace of policy changes

Infrastructure Minister Ian Borg said that there was a misconception that developers build property when there is absolutely no demand and apologised to developers for the long waiting-time before certain policies provide operators with legal certainty. 

“I admit, some of our policies are outdated, but the question is whether they guarantee legal certainty for developers. Consider the Fuel Stations Policy, for example—we are still waiting for this to be processed, still waiting for a policy paper to regulate planning of fuel stations. While we reformed the Planning Authority and created the Environment and Resources Authority, a year and a half for this to be reformed is too long a time,” Borg said, adding that policies should be clear to all.

Joseph Muscat warns against greed

Prime Minister Joseph Muscat

In his keynote address, Prime Minister Joseph Muscat said there were three firewalls that guaranteed that the construction industry remained sustainable. 

“The first guarantee is the gut feeling of the developer where seasoned businessmen always know the demand and what will work and what won’t. The second firewall is banks — banks would not hand out facilities for a project that they are not convinced of,” he insisted.

The third firewall is the government policies and decisions where the government can stall everything if it sees that this is required.

“This year alone, we stopped the construction industry, a sign of credibility, and the Malta Developers Association and Chamber of Commerce agreed with such a decision,” Muscat said. 

He was referring to a week-long moratorium on excavation and demolition on construction sites after two accidents which saw private properties in Pietà and Mellieħa collapse.

Muscat admitted that the growth of the property market has plateaued and that this was a sign that the market was becoming more realistic and regularising itself, a guarantee, he said, that the firewalls were working.

“I do believe, however, that while the economic growth may moderate in the rest of Europe, the situation in Malta will not change. I do not believe in a rollercoaster economy. We will keep growing, it’s not an issue of now being time to slow down,” Muscat said, adding that the government’s main target was to ensure a growing middle class.

“It is of interest to everyone to see the country growing and succeeding… but there might be elements of greed that risk poisoning us. Greed needs to be flushed out from our system. If there was a mistake we made in this sector, it’s that we allowed this sentiment to flourish. People enjoy seeing growth and success but they don’t like greed,” he said.