David Pace, partner and head of advisory at KPMG Malta, explained the recent, buoyant market has presented two sides of the same coin. “On the one hand, we have had double digit price growth enjoyed by those who participated in the market in this period (albeit with signs of a slowdown in price growth in 2018 over 2017). Then, on the other hand, there has been increasing stresses on affordability, along with the risk of cost-push inflation on the economy as a result of demands for higher wages just to meet higher property costs.”
In fact, in a recent article on the Times of Malta, the Central Bank said that higher home loans were being granted by banks to cover increasing property prices. In the piece, the CBM warned that this could spiral to unsustainable levels and may even lead to a financial crisis followed by a recession, even though it emphasised there was no ‘imminent danger’.
“The Central Bank has introduced prudential measures,” Mr Pace continued, when asked whether a financial crisis could be looming. “They are measures similar to those already existing in other jurisdictions, and they will help to mitigate risks that may present themselves under scenarios of rising indebtedness to finance property purchases,” he noted.
He pointed to the fact that, “as indicated by the CBM”, banks today already have their own credit management parameters.
David Pace - Partner and Head of Advisory at KPMG
“So, the new measures being implemented are, generally speaking, not expected to present a major financing constraint across the board. They are, instead, intended to address areas that are believed to be more vulnerable, including the buy-to-let market where the CBM is encouraging more contained and resilient levels of exposures for this segment. It is, after all, a segment towards which families and individuals may, on the back of recent property returns, be herding into but which, like any other market, has its own level of volatility.”
Asked for his thoughts on the market, RE/MAX Malta COO Jeff Buttigieg said that it does seem to be stabilising – although he also argued that there is no bubble about to burst.
“Every now and then there needs to be a correction in the market,” he stated. “And we’re going through that right now.” He also said that the agency has not seen a major decrease in sales, although it has noticed that banks are in the process of increasing deposits. “However, I can assure you that, just like in the 2008 crisis, our local banks are being very cautious when it comes to who they loan to. Through due diligence, they are careful enough to know that they cannot overextend themselves,” he stressed.
Jeff Buttigieg - Chief Operating Officer of RE/MAX Malta
As a result, RE/MAX have decided to “focus on improving our own customer service and giving our clients the best-possible experience when it comes to buying in Malta. To us, that is what the future of real estate locally is all about,” he said.
Meanwhile, Ian Casolani, managing director of Belair Property, does think that there are cases where buyers over stretch themselves and commit to higher home loans to cover a property they want.
“In some cases, they can afford to cover their commitments long term but, in others, they unfortunately can’t,” he said. “Now, though, with the recent Malta Financial Services Authority and CBM changes to home loans and property borrowing, this situation is being addressed and conditions are being significantly tightened. And, although many see this as a negative move, it is probably important that this is done so as to maintain a healthy market going forward,” he continued.
Moreover, he expressed his belief that it is “very important for the market to level out as it is doing now, because it was fast becoming unsustainable,” he also added that he hopes “this will help to safeguard the longer-term view and the bigger picture.”
Ian Casolani - Managing Director of Belair Property
In fact, looking to the months ahead, Mr Chetcuti believes that the property sector will definitely continue to “cleanse and stabilise”, which “will lead us into a buyers’ market,” he said, thus “making it the right time for solid, professional investors to purchase. After all, we have to admit that over speculation is never healthy for the country.”
He also stated that a slowdown of the property market will lead to less revenue for the country overall. “The property industry remains the island’s biggest motor and wealth generator and has been since the 60s. Things will change but we also see it as an opportunity for the Government to implement new laws with regards to the upkeep of property façades, especially within our towns and villages. We would also like to see more architects presenting better designs, and being proud of their work,” he said.
This is an excerpt of a story which initially appeared in the September edition of The Malta Business Observer.