Careful of that high-rise bubble… | Chris Grech

Real Estate top gun Chris Grech, chief executive and founder of Dhalia Real Estate, has warned that the property bubble can burst if there is insufficient demand for thousands of properties being proposed in high-rise towers.

Grech, who developed the Bay Street complex at St George’s Bay, has no hang-ups about the aesthetic merits or the social impact of high-rise. To him, the only way is up. But he cautions about the economic impact of the scramble for high-rise down in the bay.

“We cannot afford to think that the bubble will never burst... That is why we have to be proactive and work on a plan to ensure sustainable growth.”

What could make the bubble burst? Unbridled development and carte blanche for any high-rise folly, Grech says. “If we do not realise that we have to go out there and be extremely proactive to attract investment in the face of intense and often cheaper competition from other countries, it can burst.”

It sounds simple enough: Unless Malta taps the international demand exists for such property developments – and Grech believes there is – the towers will simply result in an oversupply of properties.  And to get there the country must invest heavily to attract prospective buyers, by marketing its brand abroad and improving surrounding infrastructure, something that would also benefit St George’s Bay ‘natives’ like him.

But his main concern is that the demand is not there at present for the larger part of the nine high-rise earmarked for the St Julian’s and Sliema area. In the absence of a foreign investment surge, they risk undermining a balance that has allowed sustainable growth in the luxury real estate sector.

Since Labour’s election in 2013, Grech says residency changes for foreigners and first-time buyers’ incentives turned the tide in favour of the rental market and property investment. The positive climate is only the cream on the upward trend that property has seen since the 1980s. Even during the global recession of 2008, “we felt the pinch, but the bubble did not burst. We are a resilient, small market with property ownership much in our hearts.”

But still missing in the Maltese real estate sector is the “upmarket” demand from international buyers, and that means having a quality “five and six-star” product. Which is where high-rise comes in, necessitating both an infrastructure upgrade as well as a massive marketing exercise to actually ensure demand matches supply. But that’s where the fault line comes in.

Grech echoes warnings of a supermarket mentality in construction by finance minister Edward Scicluna. “Scicluna’s was a very wise comment. We have to look at the demand. I am sure developers know what they are doing. They are even using top international designers and architects for their projects. They clearly know that they have to offer a good quality product.”

“At present there isn’t enough demand for all these projects coming on the market. With a good professional and united approach and a commitment by the government as well, we can make it.”

And who gets to fork out the cash for this marketing effort? Grech unashamedly suggests that it would be the government to foot the bill. “It must ensure that a strong marketing machine promotes the Maltese product worldwide. This needs investment by the government, not just from the private sector. If necessary a think tank has to be created to come up with a plan. We need to be proactive.”

Grech says that it will the global rich who will have to buy such expensive and upmarket properties, adding that companies too would be interesting in securing a Maltese base in search of the island’s tax benefits. “High net worth individuals don’t necessarily want the Maltese product. Businesses can do a better job here, apart from benefitting from Malta’s geographic location and its climate…”

Indeed, Grech suggests that up to 90% of those who have acquired a €650,000 passport under the Individual Investor Pogramme are more interested in the passport’s perks than in the island itself. “But it creates lot of interest about Malta… it was a good marketing campaign.”

But here he warns that that the government will have to intervene to ensure the over-supply of property on the market does not upset the balance. “The responsibility that the government carries is to ensure that the right infrastructure exists for such projects to operate.”

This would mean ensuring the right traffic flows in the area, pedestrianised links, even the sewerage system. So how does it even make sense to allow such a simultaneous development of projects – Corinthia, Seaport Franchising, Villa Rosa to mention just a few – and demand tailor-made solutions to solve the very problems they create?

“What’s important is that the right infrastructure is in place when these developments are being built, to be able to monitor and address the situation,” Grech suggests.

So, build more towers when our traffic situation is already gridlocked?

“There are solutions,” Grech says. “We need to take immediate action. We don’t need to put everything on hold. What we need is a solid foundation. We have to address these problems now by finding alternative systems for traffic, such as more underground tunnels,” Grech says with some optimism that may lack solid foundation.

Why not put the projects on hold until a proper transport plan comes to fruition?

“We should start working on this plan right away. I don’t believe in moratoria. If a decision has been taken by the government to go for high-rise and the public and business are excited about it, the next step should be to prepare ourselves better. We’re not prepared yet, but that means we have to act fast, not introduce a moratorium.”

Grech also says that mega-developments will double retail space already existing in Valletta and Sliema combined, questioning whether there is even enough growth to justify such an increase in retail space. Here he latches on to the ‘Montebello syndrome’ coined by architects’ chamber president Chris Mintoff, who used the cautionary tale of the A3 Towers in Paola where quick-reward projects get left behind. “My advice at the time was that it should not have been a residential block because of its location,” Grech says. “Its failure was not down to the market but down to the use. The developers were unwise to exploit the boom in the residential sector. But there was no such demand in a heavily trafficked area overlooking a cemetery. People do not like to wake up in the morning and look at a cemetery. If a five-star office block was built in that area, it might have been an enormous success.”

Still, there is no doubt that this property market is simply creating new properties to be bought and sold in an endless cycle of speculation. And we constantly latch onto the great white hope of having foreign buyers take up the supply. Won’t it make prices even more unaffordable to the Maltese? 

“I wouldn’t say building tower blocks in St Julian’s will impact the cost of an apartment in Lija, Attard or Mosta,” Grech says. “If you own your own property in which you live, I am sure that it is in your interest that there is growth in the value of your property… Property ownership flows in our bloodstream. Climbing up the ladder of life is associated with owning a second property.”

Of course Grech can speak with enthusiasm and excitement of the brave new world of Maltese real estate. It is his bread and butter after all. But his concern on the sustainability of the high-frenzy should set off some alarm bells. It’s a warning that cannot come too early.