Rent control? No way, says developers association president Sandro Chetcuti

As Malta takes stock of a rental market whose soaring prices are raising concerns on affordability by locals, it remains unclear as to whether the Labour administration is willing to tackle the problem.

Last week week, finance minister Edward Scicluna insisted that the market would adjust itself in time – a hands-off approach that may not reflect Prime Minister Joseph Muscat’s views on protecting tenants against rising prices, in a meeting with the Malta Developers Association.

But the MDA’s president Sandro Chetcuti sounds a confident note that the government is “intelligent enough” to steer clear of any rental controls in the upcoming Budget, a move he claims would herald economic disaster.

“I am convinced the government is intelligent enough not to kill the cow that gives it milk,” he told MaltaToday, adamant that market intervention was not the answer. 

“I understand the government, because it has a dilemma given that it has people unable to afford a house and who have a wage that is only just enough to live on but isn’t low enough for them to qualify for housing schemes,” he said, adding that he was sure the government was determined to continue seeing the economy grow. “It must solve these types of problems intelligently.”

Malta’s property market exploded in recent years, with high tourist numbers boosting the short-stay rental market, and a growth in both high-skilled and low-skilled workers from Europe fuelling the demand for accommodation. Over 13,000 migrants settled in Malta in 2015 alone. Additionally, the sale of passports under the IIP became a factor in rising real estate values.

Central Bank data shows property prices have risen by 36% since 2010. A promotional booklet for Malta’s bid for the European Medicines Agency also revealed the spread of rental prices across the island: a three-bedroom apartment of up just 130 square metres could fetch up to €1,169 rent in Central Malta; in the south the price goes down to €693. A one-bedroom flat costs €700 monthly in the centre, down to €382 in the south.

“Malta has to decide whether it wants less development, or more affordable rents,” Chetcuti suggests, presenting a stark choice.

Despite calls from civil society for some form of government intervention, finance minister Edward Scicluna this week echoed Chetcuti’s sentiments, saying only policies that increase property supply could temper rising prices. “The demand is greater than the supply, so policies need to be aimed at addressing supply so that the market can correct itself,” Scicluna said. “Rents went up for a reason, and in the same way they went up they can go down.”

Chetcuti insisted that rent control remains “out of the question”.

“This would just open the door to the black economy, to a disaster,” he said. “The government can’t – and we won’t let it – dictate the prices of the private sector,” he said, adding that it didn’t seem like this was the government’s intention anyway.It can increase or reduce taxes and can be generous with its own money, but it can’t do the same with other people’s.” 

Abroad, some countries have regulated their rental markets through a points-system, or rental price indices, and even capping annual increases – measures that have not brought down the property market. Chetcuti insists landlords are “protected by EU law” against such regulation. “It’s 2018, you can’t do these things. How can it be? No sir, not acceptable anymore. I’m sure that if the government tries to do this it will face strong opposition and it will break the economy.”

Evidently not a fan of market controls – Chetcuti says it’s “like a limit on people’s salaries” – the MDA president believes, like Scicluna, that supply had to increase on the market. One such measure, he claims, is the reintroduction of key money (rigal) paid to landlords as a lump sum when renting out property in the long-term.

“If a landlord is given €10,000 in key money on a €120,000 apartment rented out for a period of five years, it would be a good way forward,” Chetcuti says. Landlords, he believes, could have “peace of mind” that they are not going to lose money if their tenant damages the apartment, while at the same time, ensuring that tenants have a rent that is stable for the duration of the agreement. 

Paying a lump sum of €10,000 over a fifteen-year period amounts to a €2,000 a year, or €166 a month, which would be added to the monthly rental price – not an insignificant increase. 

“You can’t have your cake and eat it,” Chetcuti says. “If you want to rent in the long-term but at the same time want to ensure the price remains low, there must somehow be a win-win situation,” he insisted. 

Another solution to the lack of supply of accommodation is a revision of the minimum size of apartments. Again it is a controversial suggestion for an island where the popular view is that it is crippled by over-development, while residential units become smaller.

“The Planning Authority can’t keep telling developers to build at certain sizes when the trend is that people need smaller spaces,” Chetcuti insists, adding that in many cases, buyers are being required to buy properties that are larger than what they require. 

“It’s like inviting friends for a drink but forbidding them from drinking anything less than a pint. Why must they get drunk?”

Chetcuti's MDA may hardly be the voice of moderation on the property market. It's proposals for the Budget include the indefinite extension of the first-time buyers’ scheme – which removes property tax on their first purchase – but also the introduction of a second-time buyers’ scheme for those wishing to move house, as well as a number of incentives for developers to shift to more environmentally-friendly measures. 

“The government must ensure that it does not shock the economy,” says the man who gloated about making hay while the sun shines under Labour’s expansionist economic model. “We need to keep the serenity and feel-good factor there currently is, while introducing measures to address specific issues.”