Chronicles of a building boom gone bust

CASE STUDIES Portomaso | Lija | Hondoq ir-Rummien

Malta experienced a property price boom between 2003 and 2007 which coincided with a massive inflow of repatriated Maltese savings abroad during the process of Euro adoption.

It was a one-time phenomenon which the government said, to go by its Strategic Plan for the Environment and Planning, explained "the continued increases observed in the latter years of the boom."

But curiously, it was a process was assisted by planning policies blessed by the government, which fuelled investment in property.

New guidelines that came into effect back in April 2005 encouraged more high-rise development, allowing penthouses to be built on third storeys and 'setback' third floors on small houses in towns' inner cores.

The new guidelines allowed owners of houses in Urban Conservation Areas (historic town centres) to apply to build a third-floor setback from the street, and high-rise buildings previously allowed only on land measuring 3,000 square metres were permitted on 2,000 square-metre land.

Then in 2006 the government announced an extension of development boundaries, opening up a stretch of land the size of Siggiewi to the onslaught of development. On that occasion Prime Minister Lawrence Gonzi justified extending the outside-development zones "on social grounds".

"Property prices are sky-high, and there had been calls for government to tackle this problem for hundreds of young couples who are getting married. It's a very important point and we have a duty to respond to this issue," Gonzi said.

In August 2006 Minister George Pullicino sealed the process by approving the local plans.  The plans includes a number of radical changes over the draft local plans which had never been issued for public consultation.  Both  MEPA auditor Joe Falzon  and the ombudsman Joseph Said Pullicino lambasted the process in separate reports on changes made to plans for Santa Marija Estate in Mellieha. 

The building boom

Between 2000-2010, 75,000 new dwellings were permitted by MEPA when the projected demand during the same period was set at 21,700 units.

Another 53,000 dwellings lay vacant in 2005, naturally confirming the "oversupply of land for housing" mentioned in the Strategic Plan. Between January 1998 and May 2008, the Malta Environment and Planning Authority (MEPA) approved 65,737 new dwellings, despite a corresponding increase of 17,000 vacant properties between 1995 and 2005.

Moreover, 34,146 new dwellings were approved between 2005 and 2008, after building heights were increased and new local plans and development boundaries introduced.

The number of permits for new dwellings shot up from just 2,994 in 1998, to 11,343 in 2007 - an increase of 293%. The greatest increase was registered in the number of apartments approved by MEPA, which increased from 1,651 in 1998 to 10,252 in 2007: an increase of 521%.

MEPA data indicates that apartments accounted for 64% of all new dwellings permitted in 2000. This proportion rose to a staggering 90% in 2007, to then decrease to 84% in 2010.

The year 2005 represented the turning point for the property market, which was flooded by new applications.

In that year alone the number of housing units constructed increased by 35%, from 6,700 to 9,000, and despite the increase, prices skyrocketed by 40% since 2003 for apartments, and by 35% for two-bedroom maisonettes, according to the Building Consultative Council's annual report.

This coincided with Malta gearing up for the Euro currency, when more people started channelling their undeclared monies into property development, fuelling a spiral in property development between 2005 and 2008.

In 2007 economist Edward Scicluna warned that the property inflationary explosion was like a fire: "In the present context, what is fuelling the present property inflationary spiral is the excess liquidity of Maltese currency in circulation seeking back-door conversion into euro."

Changing landscape

The building onslaught resulted in the growth of a civil society movement against rampant development in towns and villages.

This discontentment contributed to the PN's change of heart on the eve of the 2008 election when the Prime Minister took it upon himself to reform MEPA and redress the environmental deficit. Unsurprisingly, the political U-turn coincided with economic factors.

According to the Strategic Plan document the building boom was followed by a so-called "correction" in 2009 and 2010, which was "well synchronised with the global recession and correction in real-estate prices."

Subsequently investment in residential housing declined, suggesting that investors had reassessed expectations of long-term capital gains into more realistic and sustainable levels.

The new economic and political environment resulted in a less pronounced pro-development bias on the part of MEPA, to the extent that major developments like the Portomaso extension were turned down. 

Surprisingly, the Portomaso extension was recommended for approval by the case officer because these were deemed to conform with the local plans, but were than thrown out of the window by the higher MEPA boards.

One such case being recommended for approval is a 10-storey block instead of the Forestals showroom in Sliema.

The government has also announced plans that it intends to revise the 2005 policy allowing penthouses on any three-storey block.

The government's declared policy is that of diverting development towards the restoration of old buildings in the village cores.  But so far schemes have been quite limited in scope, and even developers are complaining.

The announced fiscal incentives for the conservation of buildings does not apply to all buildings in urban conservation areas, but only to grade one and grade two scheduled buildings.  Individuals who wish to restore their residence will be given a rebate of 20% on expenses, capped to €5,000 - but the catchment of people who can benefit from this incentive is clearly not enough to get the industry buzzing.

This includes an exemption on duty on documents for transfer of ownership between heirs, valid up to the end of 2013, with the declared aim of facilitating the "consolidation of ownership".

Local Plan anomalies: Three case studies

Portomaso

The fate of the proposed development of 46 villas in the last undeveloped area previously scheduled as an ecological area, behind the Cavalieri Hotel, was sealed by a permit condition imposed when the outline permit for the Portomaso development was issued in 1996 which states that "no extensions/enlargements of this development, its individual elements or any related development within or outside the site will be permitted."

But the North Harbour Local Plan approved by the government in 2006 still designated the area for residential development.

A report by MEPA's Local Plan Unit cited in the case officer's report raises a number of questions on the way the zone was designated for development, despite the original intention to safeguard it. It notes that the Local Plan designated a number of areas for their ecological sensitivity.

"It is not clear why the area due east of the entrenchment wall (the site of the proposed villas) was not included as being of ecological importance, given that at the time the relevant issues were known."

One of the maps included in the plan shows areas indicated in a blue dotted texture were to be preserved as part of the natural coast. "If the intention was to leave the area free from development, it is not clear why this area was not given similar shading."

Instead another map designated the area in question as one for "residential and low impact uses... If the intention was to limit development till the entrenchment wall, why was the shading extended beyond it if the intention was to leave the area undeveloped?"

Lija

A new three-storey block and a penthouse was approved by MEPA's Development Control Commission on March 4, 2008 to replace an existing two-storey semi-detached in Transfiguration Avenue: just 20 metres away from the village's picturesque Belvedere.

In so doing, MEPA was following the rules set by the Central Malta Local Plan. The local plan allowed three-storey development with penthouses along Robert Mifsud Bonnici Street, which cuts right across Transfiguration Avenue.

But the local plan itself was in open breach of Structure Plan rules protecting scheduled monuments like the Lija Belvedere tower.

MEPA's own Heritage Advisory Board warned that the development will have a negative impact on the Belvedere - a Grade 1 historical building.

The Heritage Advisory Committee declared that "there is no doubt that the building will be very visible and will be the new background of the tower when one drives up towards the Lija church."

Following a campaign by Lija Mayor Ian Castaldi Paris, the government succumbed to pressure and scheduled a buffer zone to safeguard the visual integrity of the Lija Belvedere Tower and its surroundings. Following this decision no buildings can exceed two floors from street level within this buffer zone area.

Hondoq ir-Rummien

The new Gozo Local Plan, approved in 2006, facilitated the approval of the mega Hondoq ir-Rummien project, referring to "tourism and marine-related uses" and "sensitively designed, high-quality and low-density buildings that blend into the landscape".

Hondoq was also identified as the site of a "destination port" - a euphemism for a yacht marina.

In fact, the authors of a project development statement presented immediately after the publication of the local plan refer to the delay between 2002 and 2006 as "four years of pro-active consultation" with MEPA.This was well before Eco-Gozo and the Prime Minister's declared zero-tolerance for ODZ development.

But in August 2011, MEPA's environmental arm - the Environment Protection Directorate - called on the authority to refuse the project.

MEPA's Planning Directorate was just about to issue the final case officer's report when the developers presented a set of new plans which retained the residential aspect of the project but dropped the yacht marina, replacing it with a swimming lagoon. But the Authority has told the Hondoq ir-Rummien developers that it would only consider the latest plans if a new application is presented. This means that the developers will have to start from scratch. The developers have appealed against this decision. A decision on this case has been deferred to October.