Wednesday, 8th October 2008
Property crisis looming
Clouds are gathering over the property market according to the GRTU, which warns that there will be a crisis in the industry unless the government intervenes. Photo: Matthew Mirabelli.
The property market is stagnant and could reach crisis point if the government does not give first-time buyers incentives, the Chamber of Small and Medium Enterprises - GRTU is warning.
The GRTU says its recommendations are aimed at cushioning an anticipated "hard landing" by drawing back into the market buyers who are playing a waiting game.
The proposals include the re-direction of the €20.9 million, envisaged for the construction of about 300 social housing units, to more appropriate incentives.
The president of the GRTU's property section, Sandro Chetcuti said he could not understand the need to invest more money in social housing, pointing out that this would continue to kill the property market and create an economic crisis.
In certain cases, Housing Authority prices were higher than the private sector's, Mr Chetcuti maintained.
GRTU surveys show that there is an oversupply of residential developments, which, coupled with stringent banking conditions and a more cautious approach to loans, is contributing to lower affordability and indecision by prospective buyers. As a result the market is adjusting.
The downward market correction vis-à-vis property prices and the government's indecision on undelivered electoral promises on housing were sending out the wrong signals to prospective buyers, he warned.
The uncertainty could lead to a credit crunch for developers, businesses, contractors and other industry stakeholders.
Explaining today's scenario, Mr Chetcuti said that, while the property supply grew, the demand did not. Prices had stopped rising in 2007 and 2008 was seeing the stabilisation of what were inflated prices.
"We want to move towards property becoming an investment, without the excessive increase in prices," he said.
Today is a buyer's market, Mr Chetcuti claimed. But the problem was these buyers "feared" it was a sliding market and were holding back, losing opportunities and aggravating the situation.
He insisted there was a limit as to how much prices could continue to drop, discouraging waiting.
"When the price is good, go and grab it," Mr Chetcuti said, admitting that some developers were still dreaming and prices had to be corrected.
To tackle the indecision, the GRTU strongly recommended a six-month moratorium on the payment of stamp duty on property purchased by first-time buyers, including foreigners, on prices of up to €116,468.
It is also recommending the allocation of funds for the introduction of the government's pre-electoral promise on the shared ownership scheme - €23,300 per couple to first-time buyers - which would kick-start the economy.
Money used for social housing could be re-directed towards the scheme, which, if boosted, would lift the stagnation, result in an increased sale of property and end the apathy, Mr Chetcuti said.
The GRTU also encouraged the government to incentivise the rental and emphyteutical concessions by introducing a flat tax rate to owners - separating revenue on investment from that on income and trading - and tax credits to first-time buyers for a number of years.
Tax credits should be granted to buyers who decided to rent property instead, the GRTU insisted.
It was also proposing extending the five-year option granted on final withholding tax to eight years to save a substantial number of developers, who acquired land at a high price, from a serious credit crunch as the market is going through a deflation period.
The GRTU called for the elimination of double taxation in connection with final withholding tax on VAT payments, explaining that developers were paying VAT on furnishings and another 12 per cent on them when selling.
Moreover, final withholding tax, or capital gains, should be paid on the real selling price and not based on the subjective valuation of the government's architects who sometimes inflate the market, with buyers being fined unnecessarily, the GRTU said.
It proposed the setting up of a task force to examine practical ways of addressing excess supply of housing units through the introduction of mixed-use zoning, given the growing demand for commercial premises.
The government should wake up and issue a legal notice to permit commercial operations, such as offices and small showrooms, in residential areas, it said. Otherwise, it would be assisting in the onset of a crisis.
The GRTU also proposed the setting up of a fund to aid stakeholders in the implementation of the Energy Directive, which comes into force on January 1 and is expected to cause chaos as no one has understood what is required and it has not been marketed adequately.
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Comments
Why should Government use *our* money to keep the prices *we* pay **HIGH**?
"The uncertainty could lead to a credit crunch for developers, businesses, contractors and other industry stakeholders."
UNQUOTE
That would be just great, it's their turn now after so many couples and families have suffered and will long suffer their own credit crunch in order to be able to pay for exceedingly overpriced property!
They never cared about anyone so why should we care for them. What goes around comes around. Also maybe finally the islands can get a rest from their distruction.For the nine years that I have been here all I have had to suffer are bad roads sometimes caused by construction companies who dig up roads and patch them up with gravel afterwards and, the constant building sites all year round.
From the fire was born the phynix. From bad good follows.
Ronnie Gauci: People who can drum up Lm60,000 - yes, even if it is loan money - are not penniless.
With more than 60,000 vacant properties and at the rate we are building, we are not far away from this either!
100 points man! You hit the nail on head! I agree with every single word you said!
Its a pity that these suggestions will never finish in our country's political agenda as there are high persons invovled in the property market from all sides! These ideas will surely solve a lot of problems which our country is facing that is public finances,envoirmental and local planning amongst all.
It would be sure an investment for us and our children's future if someone out there listen !
So when there's a crisis of some sort or when a balloon is about to burst, the first who do not want to sink are those that made millions when the going was great.
So the property developers (read: environmental destroyers) want the Govt to help with first time buyers...fortunately, some other contributors have expressed their ideas as to what they should do. And that's what the Govt should tell them, too - adjust prices to reflect market, please!
After all, we are living in a free market. And these developers do consider themselves as entrepreneurs, no? So how about them doing the first step?
Is this what these businessmen are made of - go crying to Govt when they encounter problems?
If the bubble doesn't burst...THIS IS MY SOLUTION. Apply 'Vacant Property Tax' (V.P.T.) to owners/companies….and the longer you keep them vacant the higher the tax goes & the more vacant properties you have,the more you get taxed! And if the owners classify the properties under rental purposes to avoid the V.P.T.…..and goes un-rented for more than 12 months..you still pay VPT.
• Property has been vacant for NOT MORE than 12 months – No tax
• Property has been vacant for MORE 12 months but LESS than 24 months – 1% tax on the cost of purchase or market value according to govn’t updated and issued market prices.
• Property has been vacant for more than 24 months – 2/3% tax.
• If the portfolio of vacant property exceeds 10 units and have all been vacant for more than 12 months a flat tax will be applied of 4.5%.
On average property prices in Malta (aside form the past 2 years) increases on average 2/6%. The tax will make the profit margin for heavy property speculation rather thin…..so whoever wants to go into the speculation business, better work his sums right!
Bon Appitit.
Nowadays many parents are preferring to demolish their terraced houses and instead build apartments for their children and so leave the cash within the family. No wonder that they are feeling the pinch and from what I'm hearing "IL-KBIR GHADU GEJ!"
It would then be essential that the government would create laws and find solutions on how to avoid that this situation happens again. Where there is money there is corruption; where there is a lot of money there is a LOT of corruption. This is what happened at MEPA. Many people started seeing their personal interests before the national interest. Keeping property at a fair price while assuring that property moves from hand to hand easily (properly) would ensure that there is no need for additional property building and prices still remain at a fair price.
Malta is a small island so giving an incentive which directly will also give an incentive to build more property is insane! The problem here in Malta is that most of us cannot think of the consequences of our decisions.
The solution is to put a property-tax on any property owned after the second one. That property-tax would be even higher if that house is not even used.
In this way anyone with more than 2 houses would have to either sell their extra housing or else pay the property-tax. This should immediately put more property on the market thus helping to reduce the current absurd prices. Also with the extra money made from tax over sold property and property-tax the government could help those couples who so far have been paying absurd prices for their homes.
Bubbles - prices-over inflated due to speculative pressures - must be allowed to deflate early on or they will burst violently later.
While at it would Mr Finance Minister subsidise the price of carrots as long as they are given as a prize for the most absurd WARNING of the week.
DON'T YOU EVEN DARE THINK OF LOOKING AT MY TAX EURO FOR SUCH A PURPOSE.
If Mr Minister wants to help, just tax vacant property.
Have you been living out of this world during the recent months?
Are you suggesting that we (as taxpayers) should subsidize property speculation which is known to be making abnormal profits?
@ D.Delia, A.Zammit and other likeminds: ben detto!
GRTU developers' statement (an autogoal indeed to their members' aspirations!) is an indirect admission which shows that market forces are indeed not the sole prerogative of property speculators!
@P.Camilleri: hard-earned taxpayers' monies should not be tampered with! The local property market IS ALREADY OVERHEATED! Are you suggesting that we raise the temperature further?
If foreclosures come, then the social housing wil fit in to accomodate the persons effected. The government should assist those rather than lining the pockets of speculators.
It's again the government and the bank who have ripped off the Maltese public in these years. The Banks and speculators made their money out of inflating prices, whilst the government conceded and taxed accordingly.
Government funds should go firstly to social housing, for REAL needy persons first of all, and to mantain a stable property market secondly. Keeping this status quo, where people have to pay through their noses to obtain accomodation is only helping to increase young adults who do not venture into the property market as they don't want to get ripped off and chained for life.
Example: a semi basement, garage like location in the north of Malta, with drainage systems for all flats above passing through your residence (and needing access through your residence for servicing), is marketed as a studio maisonette selling for Lm40,000 (EUR 93,000). It's a joke! And does GRTU want government to help this? Go tell it to the marines!
Maximum marks, J Smith!! You've taken words off my mouth; couldn't have expressed our concurrent opinions better.
It's time property prices in Malta came down HEAVILY because they were OVERINFLATED . How come other countries ( UK, Australia, USA ) periodically, say every decade, go through a property slump while in Malta, wonder of wonders, prices were continually rising ?
Property speculation has been rife during the past years. Speculators have invested heavily in property to avoid baring/declaring their enormous cash assets with the approach of the Euro changeover in order to get maximum income tax evasion cover. The bubble MUST burst once and for all. No wonder most first-time buyers found it impossible to buy property.
GRTU - the market must find its own level; don't expect government intervention. You never whined when prices were on the rise since your members had never had it so GOOD, to the detriment of the buyers, of course. Prices must continue to slide until the market finds its own level. If some members can't cope with Bank loan repayments, how about selling off the property to Government at reasonable prices for the latter to provide social housing ?
1.critisize the workers of the Drydocks because they were a burden on the coffers of the state,
2. lash out at the utilities because Government came out with a new tariff regime
3. propose that Government come into assistance to these tycoons who made millions out of the property boom
GRTU seems to me a loose cannon with no credibility.
Its called "FORECLOSURE" Sur Professuri......and if you don't know what it means, I recommend you go do some browsing on the internet!!!!
Free market is ok for the GRTU but it suffers from the NIMBY syndrome (the GRTU that is)
How is a pre-fab councrete badly insulated made from the cheapest construction material on the market worth 60K Lira?
You can buy a 3 bedroom ex-council house with a large garden built in the 1960's suburb build quality for less than that in some decent parts of Britain.
Also where is the economy that supports such prices? House prices in Malta have outstripped income by 3 times - totally unsustainable, absolute madness with detrimental effects on the wider economy in the very near future, this is what happens when you allow the construction industry carte blanche because they line the pockets of Gonzi PN
Don’t know whether this is the frame of mind of those selling property, but its just an observation.
jean
Finally we might just have decent houses with decent prices; not tiny clustered rooms for which we have to work hard throughout the lifetime to pay for them.
No dear government . Property investors, developers, contractors, and the remaining lot, have been having it good for far too long....even at the expense of our common environment.
It's time for us common people the get a good deal for once in a while. They have gathered enough money (biex jikluha minn gewwa). We've been eating from our savings all the time. In fact most of us can only speak of loans, not savings.
It's what you've always wanted dear GRTU - LET THE MARKET RULE -
What happened now? Is the market ruling against you ?
Whoever is in his senses should have set his greed aside and read the writing on the wall for quite some time.
and the people who are looking for their first property can
all of a sudden afford one?.................. Oh what a shame
Is the GRTU actually asking the government to subsidize this industry to the tune of €20.9 million which are to be re-directed from social housing?
Are we being asked to support this industry from tax-payers money?
This is the same industry which has made a few people very-very rich while making buyers, especially newly married couples, commit their life earnings, sometimes to age 61, in order to purchase a tiny residence where to raise their family.
And here I was thinking that subsidizing the shipyards was a national issue!
No way should this industry consider government intervention. !
What about the excessive amount of empty properties; bought and held as an investment alternative to accommodate property sharks and kept off the market to artificially keep property prices up?
Let market forces rule and bring down the price level of property to one which our children can afford!
Government intervention will eventually be a help to Sellers not Buyers.
I will probably get shot for that!!!!!!
Government should not use my taxes to finance speculation.
And the very last thing we need is more warehouses, showrooms, workshops etc in residential areas. This is what "mixed-use zoning" really means. Quite apart from the impact on people's quality of life, which is evidently not a concern for the GRTU - is blighting neighbourhoods the way to keep up property prices? Get serious.