Property only remaining viable investment option, developers’ lobby claims

The property market is practically the only remaining viable investment option available in Malta, the president of the Malta Developers Association has claimed.

Sandro Chetcuti told MaltaToday that it was no surprise that the market was booming, especially since contractors – seeing their profit margins fall substantially – were choosing to develop property themselves as well.

“Property is practically the last viable investment option in this country, and more people are choosing to invest even their life savings in the market,” he said. He added that contractors’ profits had fallen steadily over the past few years, in part due to the lack of workers and the high wages being demanded by the remaining workers.

This was leading contractors to buy property themselves and develop it, maintaining control over the property and earning more than they would when they merely built the property for another developer.

Land prices were therefore rising, creating a domino effect across the entire industry, Chetcuti said.

Developers, real estate agents and even the authorities tend to agree there is currently no indication of the local property bubble bursting any time soon, but they also acknowledge the market is showing signs of slight overheating.

And some are worried that unless the industry takes measures now, the overheating will eventually – but surely – reach boiling point and burst the bubble.

Professor Alex Torpiano, Dean within the Faculty for the Built Environment at the University of Malta, told MaltaToday that it is useless to merely say that there is no property bubble or that it will not be bursting any time soon.

“In all other systems and in markets abroad, the presence of a bubble was only identified once it burst,” he said. “To say there’s no bubble is a bit shortsighted and we should instead be talking about the temperature of the market and how we should tackle this overheating that has been acknowledged.”

A KPMG report on the construction industry and property market, commissioned by the Malta Developers Association and published last week, noted the slight overheating in the market, attributing it mostly to the high demand for rental units and the increase in rental prices.

The report also noted that the rate of increase in property prices was higher than the rate of increase in salaries.

“These two will eventually meet and that is what we have to look out for and prepare ourselves for,” Torpiano said. “Maybe we should accept a 2% market growth rate rather than 5% if this would mean more stability and a steadier growth.”

This idea – anathema to developers and investors – has found a lot of support in many quarters, including the Malta Employers’ Association and former Bank of Valletta chairman John Cassar White.

Chetcuti insisted that the KPMG report had confirmed there was no property bubble in the local market, a claim also supported by economist Prof Gordon Cordina and an independent analysis carried out by the Central Bank of Malta.

“Let us not forget that development is restricted to about a third of the country’s land mass, and rightly so,” he told MaltaToday. “We agree fully about these restrictions and have advised and encouraged the government not to expand any of the existing schemes.”

Chetcuti contends that the property market was seeing unprecedented growth mainly because of the rental market due to the huge influx of foreign workers, but also because of an increase in the demand for rental units by single parents and young people.

With regards to the warnings of market overheating, he said that there were measures that could be taken to ensure this did not lead to a bubble burst.

“To keep the market healthy, we must ensure that there are not too many major projects being implemented concurrently so as not to saturate the market and end up with greater supply than demand.”

Chetcuti said it was imperative to keep an eye on the demand.

“We have advised the government on the need to promote more projects geared towards providing rental units for single parents and young people, who might not afford to buy, but would be seeking to rent,” he said.

Such rent-only projects, he said, would need to be approved in different localities, as had been done in Msida and the areas around the university.

“Such development would need its own policies and regulation, but developers would also know that the projects would only include rental units, without the possibility of putting any parts up for sale.”