A bubble about to burst or real, sustainable growth? 

12th March 2017 – Sarah Micallef

It is no secret that the property market in Malta is currently doing well. So well, in fact, that sales are at an all-time high, leading many to consider it a major boom. But do the numbers reflect reality, or is it a bubble, waiting to burst?

Perit David Xuereb, CEO at QPM Ltd, affirms that the current market for the building industry is widely recognised as very healthy, with developers, contractors, trades and consultants alike busy with considerable economic activity in all sectors. Breaking it down, he explains that development is mainly focused on the development of buildings, with a reduced disproportional activity in supporting infrastructural projects.

“During the last four years, the property market has experienced an unprecedented increase in development of residential units, hotel upgrades, office space and retail volumes pretty much in all of Malta and Gozo,” Perit Xuereb affirms.

Indeed, Douglas Salt, Director at Frank Salt Real Estate, deems a healthy demand for property locally, stemming mainly from first and second time buyer markets. Apart from this, there is also a continuing demand for property as an investment, mainly in the buy-to-let market.

Speaking of property as an investment specifically, David Aquilina, Director at Belair Property explains that historically, the Maltese public has always been keen to invest in property, and the turmoil of recent history in other investment markets has only contributed to strengthen it. “At the moment, the market is active and without a doubt, the demand for property far outweighs the supply, for reasons which might not be as clear-cut as one might expect,” he says.

This begs the question, are we experiencing a bubble or could the growth be sustainable? Perit Xuereb maintains that looking back, it seems clear that the historic development of new stock and the regeneration of existing buildings would be expected to follow a consistent growth and development rate which should match industry capacity and market expectations if on a business-as-usual scenario. However, “the slowdown in the market experienced between 2008 and 2013 as a result of the global economic slowdown and other local factors had primed the industry to react with an increased vigour and activity as soon as all that was confidently behind us.”

"The issue is not whether or not one is able to source a willing investor, but rather to source good quality property."

It is therefore little surprise that the building industry, motivated with increased overall economic confidence, corrected the slow-down of the previous years and turned into the energetic and dynamic activity that we have experienced during the last years.

Mr Salt doesn’t look upon the market as a bubble, rather, he believes it to be under pressure from increasing demand. “More foreigners are working here. They need to live somewhere and this creates a demand for letting property. Given the lack of returns in other vehicles, Maltese and foreigners are investing in the buy-to-let market. The local first time buyer is not necessarily competing with this market as they are happy buying outside the buy-to-let zones. The cost of sites, if they can be found, has gone up with an upward shift in pricing, where prices are slowly returning to their former bracket. The luxury end is less price-sensitive and more a case of finding the property in the location requested. So, I would not say it is a bubble and so far, it is sustainable,” he says.

Setting aside the question of whether Malta can be on the verge of the first ever property bubble, Mr Aquilina affirms that a market is fuelled by demand and supply. “First, one must appreciate that although property prices have increased significantly, the general public’s ability to invest in property has also increased. In the past, property investment and ownership was associated with a smaller band of the population, whereas nowadays, the increase in home ownership is significant and the property market has extended from the select few to the wider population.”

“Those in the industry can confirm that the demand for quality property outweighs the present supply. The issue is not whether or not one is able to source a willing investor, but rather to source good quality property,” Mr Aquilina affirms, posing the question: “will this continue in the foreseeable future and will the price of property continue to increase? This is like asking if the price of oil is going to increase or if gold is the future. What is true is that our economy is heavily dependent on the property sector and the country would do well to protect the industry. It is our duty to ensure that the developments that come on line are quality developments.”

"I would not say it is a bubble and so far, it is sustainable."

Indeed, Malta’s property boom does not come without its challenges. In Perit Xuereb’s view, the challenges are mainly related to the need for the industry to update itself and be sensitive to the social, economic and environmental aspirations of our country in the medium to long term. “Planning is unfortunately very reactive rather than proactive, and attempts at design of infrastructure and master-planning have not been strong enough,” he says, asserting that this poses a serious risk to the healthy and sustainable development of the industry and everything that depends on it.

The Malta Chamber President echoes similar sentiments, stressing the need to strike a healthy balance between sustainable development and socio-economic growth. “Planning and environmental policy must go hand in hand in order to safeguard the standards of life on a relatively overcrowded island,” he says, affirming that pressures on environmental considerations and land use are exerted by needs placed by all aspects of development such as agriculture, tourism, transport, commercial, residential, educational, infrastructural and social. “All must be complementary within a holistic national plan for the country’s balanced socio-economic development.”

Mr Aquilina believes that we need developments which exceed expectations and set new standards. From his perspective, high-rise could be the answer. “Some of the projects under proposal are ground breaking to say the least,” he says, maintaining that the property market needs a new lifestyle project to match the likes of developments such as Portomaso and Tigné Point. “It’s great that we challenge these concepts and question their sustainability but we also need to reward people with vision. We all recall the protests when the Portomaso project was announced. Today, one cannot even comprehend the benefits that this project brought to the island,” he continues.

Looking towards the future of the property market, Anton Borg maintains that while Malta is at present going through a favourable economic period, and the property market is currently enjoying the fruits of that growth, the international context is sending mixed signals with a large degree of uncertainty resulting from political and economic change. “Under these circumstances and until the future becomes clearer in so far as our main economic drivers are concerned, the Malta Chamber believes that the country should avoid rushing and producing a level of property supply that risks coming out of synch with the economic cycle,” he advises.

“Whereas current demand by locals and international clients outweighs supply, it is unclear whether this scenario will continue to prevail and for how long. In a scenario where it does not and the rate of economic growth subsides, the country must ensure it is adequately prepared for the ensuing effects on the construction sector, and with it other exposed interlinked sectors,” Mr Borg states.

Perit Xuereb does not foresee any major differences to the property market in 2017 compared to the past three to four years, but does point out that there will be some levelling out of the steep growth patterns experienced. “We are coming close to the turn of decennial, by which time we should have hit national targets of energy consumption, carbon footprint and resource management. Policy makers, planners, consultants and lobbyists alike have a role in this and I am hoping that 2017 will be the start of a serious change to the quality of product, respect for the environment and national resources coupled with high sustainably standards we would all be proud of and benefit from.”

This is a snippet. Read the full feature on the latest issue of Commercial Courier.

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