[ANALYSIS] The vacant property debate

With official census figures showing the number of vacant properties shooting up by 36% in just six years, questions are being raised on the environmental and economic sustainability of further construction of new dwellings. 

Moreover, the publication of census data coincides with a dramatic change in the political landscape with the PN apparently turning its back on its own pre-2008 pro-development legacy which included the extension of developing zones in 2006, as the new Labour government seems intent on kick-starting economy by removing bureaucratic obstacles in planning procedures and embarking on new projects like land reclamation. On its part, Alternattiva Demokratika feels vindicated all along.

The scale of the problem

The statistics do not include boathouses and garages but still include summer houses used for part of the year. Back in 2005, the number of holiday homes which were occupied for some time during the year stood at 10,028, which represents only 19% of vacant properties in Malta.

Since the number of holiday homes tends to remain stable over the years, the increase in vacant properties is likely to have come about as a result of new construction, especially when one considers that 34,146 new dwellings were approved between 2005 and 2008, after building heights were increased and new local plans and development boundaries introduced.

This trend is confirmed by an increase in vacant properties in relatively new urban residential centers.

In fact, the largest increase in vacant properties is registered in relatively new urban centres like Swieqi, Fgura and Attard, where vacant properties have increased by 76%-94%.

"Even if one makes an allowance for seasonal accommodation, this number of vacant dwellings is still substantial. It signifies that spread all over the island, one finds nine ghost towns - each of which is the size of B'Kara, the largest locality," says AD Deputy Chairperson Carmel Cacopardo.

This means that there is an uptake of resources, which instead of being utilised to service inhabited areas are instead being used to service these 'ghost towns'.

This includes expenditure on the development of the infrastructure (roads, public sewers... as well as maintenance works throughout the years).

But a more detailed breakdown of vacant properties is needed, according to Malta Developers Association Chairman Michael Falzon.

Falzon insists that the quoted number of vacant dwellings does not mean that there are so many units for sale and immediate occupation.

He points out that these may include summer residences; abandoned properties due to ownership disputes; properties for which owners are unrealistically expecting prohibitive sums of money; old properties that need substantial investment to make them habitable; properties that are substandard both as regards size and as regards lack of refurbishing potential; properties finished to a low standard that are difficult to sell; properties that are rented to foreigners surreptitiously and properties in shell state.

Falzon contends that a substantial part of these properties are old properties in village and town cores (mostly indicated as UCAs by MEPA) that are not considered as suitable for habitation by today's standards.

The MDA has already asked NSO to engage in a study on these so-called vacant properties so that we would know how many of them belong to these different categories. According to Falzon, the Minister for Finance Edward Scicluna has already agreed that this study should be conducted.

PN warns of exposure of banking sector to property loans

The PN's new spokesperson for planning Claudio Grech is adamant on the risk posed by fuelling dependency on construction.

He argues that one should evaluate "the weight of the property market in our financial landscape wherein property accounts for over 50% of the domestic bank lending".

Grech's comment ties in with the European Commission call on the government to "closely monitor developments in the property market, in view of its exposure of the financial sector to it".

Furthermore, Grech argues that high number of vacant properties must be considered in the context of two very sensitive demographic factors: namely the size of our country and the number of households and Malta's ageing population.

"In effect there is a vacant property for every two households which clearly shows the disproportionate supply of housing stock."

Secondly, according to Grech, this stock has to be contrasted with the fact that Malta is experiencing the demographic impact of an ageing society, hence gradually decreasing the demand for property, year-on-year.

"This is why we believe that the government should prioritise projects with a strong notion of sustainable development and economic value-added built into them rather than fuelling further construction as an end in itself."

In view of this, according to Grech, government should discriminate in favour of developments, which will leave a positive environmental impact and which would provide more open spaces for recreation particularly in the currently over-built urban environments.

For Grech, the current situation vindicated the caution of the post-2008 Gonzi administration with regards to fuelling dependency on construction.

He refers to schemes aimed at utilising existing housing stick like Skema KIRI, which the previous government had piloted in 2012 wherein "from the take-up it was evident that, given adequate conditions, the private sector will be willing to rent its property".

According to Grech, the solution to Malta's vacant property problem lies in offering incentives to owners of vacant properties to finish off their properties to acceptable standards and encourage them to put their property on the real estate market, possibly in the rental domain.

"These incentives would not only allow the latent value currently locked in these properties to be released into the economy but will also ease the pace of pointless construction of further residential units to satisfy a demand which doesn't and cannot exist."

Grech reiterated the Nationalist Party's willingness to actively collaborate with the government in establishing a common strategy on this sensitive subject, provided that consultation is not construed to merely provide information after decisions are taken.

Farrugia blames doll-sized apartments

By the time of going to print, no reaction was forthcoming from parliamentary secretary Michael Farrugia on the latest census statistics. But when asked about the high rate of vacant properties in a recent interview with MaltaToday Farrugia referred to the inadequacy of some of the buildings being put in the market.

"There is a reason why these properties were never sold and the reason is that these are too small."

Farrugia insisted that the construction of very small apartments is a major contributing factor to the high number of vacant properties as nobody is interested in buying these "doll-sized apartments".

Farrugia hinted that the new government intends to change rules regulating the size of apartments in view of the large number of small-sized apartments which have been built in the past years.

"Should we keep the present minimum floor space or should we increase it so that we have better quality apartments?"

Farrugia thinks it is justified to allow smaller apartments in particular areas, such as the ones surrounding the University, which cater for categories like Gozitan students studying in Malta, but doubts whether such standards are acceptable in other areas in Malta.

Despite the high number of vacant properties, Farrugia refused to overrule any real estate development on land reclaimed from the sea but made it clear that this should not be the aim of such projects.

"Contrary to Malta, Monaco needs more space for residential buildings and will be reclaiming land for this purpose. We do not want land reclamation simply to build more apartments on reclaimed land. We want development which has a positive impact on the economy."

But Farrugia would not exclude very high-quality up market residential development on reclaimed land, while insisting that he does not favour land reclamation, which is done entirely for this purpose.

Time for a roll back - AD

According to Carmel Cacopardo, the publication of this data could not have been timelier as it coincides with the process of public consultation, which has just been kick-started on the revision of the local plans. 

"On the basis of this data, it is obvious that the development boundaries have to be rolled back as the housing stock is in a state of oversupply for many years to come."

The revision of the local plans should consequently emphasise rehabilitation of vacant dilapidated dwellings and the redevelopment of such properties where this is necessary. In addition, wherever possible (and particularly in such areas where the increased permissible height was not utilised), a reduction of the permissible height is warranted. "This will not only reduce the rate of increase of vacant dwellings but it will impact substantially the uptake of solar energy in residential areas."

Cacopardo squarely blames the 2006 Local Plans, the extension of development zones and the increase in the permissible building heights for the massive increase in vacant properties between 2005 and 2011.

He recalls that back in 2006 when the Local Plans were approved policy makers ignored the warning sign of the 2005 Census, which even then had shown a substantial increase in vacant dwellings.

"It is hoped that this time a warning sign that 32% of the available dwellings are vacant is taken note of and reflected in the land use policies and development boundaries which are approved."

One of the initiatives taken by the government will be identification of vacant buildings in Valletta with the aim of making them habitable again through restoration and not by demolishing them.

Market can regulate itself - MDA

Malta Developers Association Chairman Michael Falzon warns against artificial restrictions from above which could warp the property market and make more long term economic damage than be beneficial.

"For example, banning new developments in a particular area automatically raises value of existing properties - even though they are substandard - in the same area."

He points out that owners of these units (including MDA members) would benefit from this but this sort of state interference should never be accepted as a matter of principle because in the long term, its effect is always negative.

"Whether one invests in large scale of real estate projects in today's market conditions is a decision that should be left solely to the investor and to his/her backers. This is a very important principle of the free market. In any case, nobody invests in projects that are obviously not profitable".

But Falzon recognises that the high rate of vacant properties does have an impact on the real estate market and the economy at large.

He argues that the impact of vacant properties on the market has been twofold: a general decrease in selling prices with supply outstripping demand and a rise in standard of newly finished residential units as units of good quality and finished to high standards are preferred by purchasers. Vacant properties also represent an unutilised capital.

One of the solutions advocated by Falzon is encouraging the regeneration of urban and village cores through proper incentives to make this sort of redevelopment profitable.

"In this way, developers will move away from building blocks of new residential units in the periphery of our towns and villages."

He also advocates facilitating the change of use from residences to offices and other commercial uses.