European Commission study finds Maltese real estate market’s rapid growth is of concern. Labour responds by slashing development permit fees and talking about land reclamation for more building.
New MEPA board director Matthew Pace, kneeling and holding the flag while Jeffrey Pullicino Orlando cracks open the Asti Spumante
The Times’ front page is interesting today: two stories, side by side.
One of them is headlined ‘MEPA fees cut by an average of 25 per cent’ and is about how developers will now have to pay less for their building development permits.
Michael Farrugia, the parliamentary secretary responsible, is quoted as saying that “this will give entrepreneurs a new lease of life after years of overly high fees”.
And right next to it, another story, headlined ‘Malta’s financial system is safe – EU. But study finds property market’s rapid growth is a concern’.
Then Labour and those who vote for them take umbrage when those of us who don’t vote for them say that Labour just don’t get it.
No, they really don’t get it, do they.
This story reports:
On the growth of the property market, the report shows that more than half (52 per cent) of all loans given by Malta’s domestic banks, particularly Bank of Valletta and HSBC, are tied to mortgages and property development.
The European Commission said although the property market did not yet appear to be exposed to an immediate risk of a bust, it had to be closely monitored and banks had to increase their provision for loan losses.
“The stability of the core domestic banks would benefit from strengthening their provisions for loan losses to limit risks arising from their exposure to the property sector.”
Brussels said although lending standards for construction and real estate services had already been tightened, keeping household mortgage lending in check was essential in preventing excessive debt build-up and asset bubbles.
The Labour government’s solution? To make it easier and cheaper for developers to get permits, and to give them more land to build on, through land reclamation that wreaks havoc with the marine environment, thereby flooding the real estate market with even more flats which become increasingly difficult to sell, and leading in turn to…
Well, I’m sure Edward Scicluna is perfectly capable of explaining this to them.
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http://www.timesofmalta.com/articles/view/20130411/local/developers-welcome-mepa-fees-cut.465173
Yep, it’s Spain all over again.
You mean it’s Zapatero all over again.
Good point. Baxxter.
Having lived here for quite a number of years, and, as an economist, I have been amazed how property prices are so ‘sticky downwards’, even in times of slow demand.
As supply increases, with the new lax development policies of the socialist government coming into force, I predict an unsustainable situation.
Demand will continue to decrease, due to fear of the new government’s irrational economic policies, which will increase unemployment. Supply will increase, due to the greediness of a now unbridled property development sector, supported by now socialist controlled banks. (BOV, for example)
An abrupt correction will occur in the next year or two. Banks will call in dicey loans, property prices will decline precipitously, and, as usual, the bubble bursts.
Bet little Joey will have sold his property assets and has all his money is in a Swiss bank account. No wonder he’s so close to Hollande and his scandal-ridden cabinet.
HP – good points – except that the banks have hardly called in property loans, except for some, since at least the 80’s. They prefer to roll interest on to the capital, thereby preserving their much vaunted capital ratio.
Oh, and Switzerland isn’t all it’s cracked up to be nowadays with transperancy being the name of the game.
It’s not the loans that are the problem, but the investment opportunities, and therefore economic growth. Someone commenting on this blog raised this point once.
Say you are in Malta. If you want to sink your money in something back home, what is there? There’s just one outlet – real estate. Or a big expensive car. Immoveable, non-productive assets. This isn’t a 21st century economy. It’s a peasant economy in a monetary framework.
The whole island is built up. There are around 60,000 empty housing units. If that isn’t market saturation… Yet we keep on building. Why? Because it’s the best way to make big money. But it shouldn’t be that way. The construction industry is shrinking everywhere in Europe, replaced, to an extent, by renovation and repair. Not in Malta.
Whenever we are the exception, I worry.
So even if the banks don’t call in the loans, how will we sustain economic growth? By knocking down empty unsold properties costing millions? Something will give, sooner or later.
Sooner, rather than later. I worry too, friend. Jackals rule now.
I always say: smack a massive tax on vacant properties and thus force people to sell. Why should a whole generation be blocked out of the housing market?
I think retail is probably inflated by 2 or 3 times the actual value.
Doesn’t the ordinary citizen also pay MEPA fees? Don’t developers take back the MEPA fees they pay from the buyers of properties? Other overpopulated small states have successfully reclaimed land as Malta also did in the past, so why is this necessarily wrong?
[Daphne – David, you really, really test my patience. Sometimes I wonder whether you are deliberately disingenuous. The slashed fees are for development permits. Ordinary citizens, as you put it, have no use for a development permit. ‘Don’t developers take back the MEPA fees they pay from the buyers of properties?’ You mean, aren’t the fees covered in the price – yes, they are. That’s the point, because when the market is flooded with low-cost property, disaster ensues. Why is land reclamation necessarily wrong? Because it wreaks havoc on the marine environment while being totally unnecessary. If we must insist on destroying chunks of the natural environment, then sticking to those above ground is easier and cheaper. But I suppose you are one of those who thinks that the marine environment doesn’t matter because you can’t actually see it.]
Is your question about the excessively large size of the real estate market, about land reclamation, or about MEPA fees?
Fees for restoring buildings in village cores have been waived. Isn’t this a positive measure?
[Daphne – No. All permits should come with fees attached, because there are administrative costs. If you can afford to restore a house, you can afford the permit to do it. A permit fee is not going to put anyone off restoring a house if they want to restore a house, nor will it dent an individual’s budget. But the aggregated removal of permit fees will further financially handicap the MEPA. To put it simply, those who restore their house can afford to pay one permit fee. But the MEPA can’t afford to lose the permit fees of all those who restore houses.]
“David” – other than the big issues that Daphne and others will explain to you, it’s been reported that MEPA is swimming in debt to the tune of some €10million.
Being that MEPA’s income comes from its system of application fees, do you still think this is all such a good idea?
SOMEBODY has to pay that €10million, David. Do you pay tax?
1. Land reclamation around Malta has already been scientifically discredited.
2. Building development benefits developers. It does not automatically benefit everyone else.
3. All fees are passed on to the ultimate buyer. Higher fees discourage purely speculative entry. Lower fees encourage it.
4. More development doesn’t mean cheaper development. It means more development. Period.
5. Over supply doesn’t push property prices down. Malta’s property market is already over-supplied but prices aren’t going down drastically.
6. The biggest cost of development is land. The more development there is, the less land is available. This pushes up the cost of land available for development. It also pushes up the value of land that has already been developed, which pushes up the price of existing property.
7. Scarcity of land doesn’t diminish demand. Hence the mad proposal for land reclamation.
8. The only way to have sustainable development is to have less development, not more.
So why is this necessarily right?
Daphne, ignore him /her.
Observing the pattern of comments he/she posts, it is quite clear that this person is well informed and is one of those persons assigned by the MLP to post comments here from time to time, just to annoy you and to try to mock this blog.
These people post frequent and sporadic comments over a span of a few weeks and then disappear. A new replacement is assigned subsequently.
[Daphne – No, s/he’s been around for ages. And s/he isn’t well informed. S/he does some Googling, comes here, gets a reply, then does another bit of Googling, comes back, etc. Also, there is a clear pattern of anal retentiveness and genuinely illogical thought. This person is also completely humourless and misses irony, which are both indicators of not particularly great intelligence. I don’t mind, really. I just wonder why s/he bothers.]
Probably just stupid.
You can actually get paid to be a troll? What career prospects that must bring up.
And another point, about the waiving of permits for restoring old buildings. This is another facetious move by Labour.
Building developers are not suddenly going to switch from demolition and construction to conversion. That’s a wholly different industry.
Finally the nail has been hit on the head. It is rapid growth in the building industry that will destroy Malta’s economy at some point.
And it is this reckless and lawless (aka no serious building code) that has created a significant unsustainable power demand.
And Joey just put it into spiraling dive. This is exactly the crux why developers have dropped the PN and took up MLP. Thereby signing their own death warrant and that of the island.
Joseph Muscat’s government has inherited a strong and stable banking system – he said so himself in Parliament this week.
Let’s not let him ruin it with his short sighted policies which he calls “economic growth.”
The United States, Spain and Ireland.
Do we have to go ahead and copy them after seeing their property markets crumble very painfully before our eyes?
As usual Labour have no idea what the hell they’re doing. L-aqwa li Marie Louise Coleiro marret tispezjona s-sinkijiet u s-sapunieri.
Well, when everything goes down the drain, at least Simon Busuttil is going to be able to claim ‘I told you so.’
http://www.timesofmalta.com/articles/view/20121003/opinion/Why-Labour-risks-a-bailout.439407
At a measured pace, Nationalist governments transformed Malta from the mess Labour had left it in to the respected country it is today. But no, that was not good enough for Joseph, Kenneth and Martin. They are in a great hurry to make Malta the best in the world by doing away with convention and running roughshod over all and sundry.
I don’t know who in his/her right mind would buy a property now, in particular close to a coast (Sliema front, Gzira front, St. Paul’s Bay front, Bugibba, Mellieha, etc)?
Apart from the approaching bubble burst with the increase in supply, the coast might soon disappear. Whoever thought that he had a property in front of the sea might soon find out that the sea in front of them will be converted into land and a block of new flants will appear out of nowhere.
Yes. The interesting thing is that the Joseph Muscat government is calling for private suggestions about land reclamation projects.
In fact, I think I will submit a proposal to have my own little private island off the coast, somewhere. I am not decided as yet about the location, but my favourite spots would be somewhere close to Sliema, St Julians, Qawra, St Paul’s Bay, or in the Grand Harbour.
The police force are going to have a tough job controlling the hundreds of protestors led by Astrid while marching down Republic street right up to the Parliament building.
Daphne, I do not think that increasing the fees at MEPA was intended at controlling property speculation. In my opinion, it was a way by which to cover the cost of an overburdened Authority and a frail attempt to make it autonomous. Alas, even that failed because tax payers still subside MEPA and its top heavy workforce especially with a chairman being paid 100,000 annual salary and a CEO a little less!
Controlling speculation and an excessive artificial demand for property is a job for banks and lending institutions or the market itself. Up to a few years ago, one of our more prominent commercial banks was giving out a 100% loans on a second property which automatically fulled inflated prices unnecessarily.
One must never forget that our inflated prices in property was the product of two capital repatriations from foreign banks in 2000 and 2003. This influx of liquidity triggered an unwanted speculation by individuals seeking to make a quick return and gave the banks unwanted cash by which to hand out as attractive loans. The vicious circle was that the high rise in property prices was forcing banks to hand out loans on artificially inflated real estate.