Cost of stone becoming cheaper

The cost of stone in Malta has gone down in real terms compared to what it used to be 25 years ago, the Deloitte annual conference heard.

During a panel discussion on The Economy And Property In Malta - Boom Or Bubble?, Architecture Project partner David Felice said that while 25 years ago a square metre of stone cost Lm4.50 it now cost Lm5.50. This meant that in real terms this was actually cheaper. There was something wrong here because stone was a valuable commodity.

The cost of construction 25 years ago was 25 per cent the sale price of property but this had now gone down to 10 per cent. So was the cost of construction suffering so as not to contribute to the cost of a building, he asked.

He said that problems in the industry included a structure plan dated 1991 with its use by date being 2001. The second structure plan, which was supposed to replace this, was nowhere to be seen.

Moreover, local plans were still in draft form except for two - those relating to Marsaxlokk and Birzebbuga and the Inner Harbour area.

Mr Felice pointed out that over 20 towers were being discussed at Mepa but there was no policy for tall buildings.

Raphael Aloisio, Deloitte's real estate group leader and partner, said that between 1982 and 1988 property prices were fairly flat at Lm12,000 to Lm16,000. There was a clear upward trend between 1989 and 2004 with the steepest hike being registered between 2001 and 2004.

But in spite of a fairly stable growth in the number of households, the number of development permits issued was increasing at an alarming rate. So would this excess supply pressure prices, he asked. He said there was a close correlation between the value of property and the amount people could borrow from banks.

John Hackett, head personal financial services HSBC, said that the rise in property prices was a worldwide phenomenon.

In Malta, while in 1997 one had to pay one's average salary 7.5 times over to purchase a maisonette one now had to pay 8.8 times.

People, he said, saw property as a risk free investment, an easy way to make money.

HSBC had increased its salary multiples for joint loan applications from three to 3.5. It also increased the maximum term of a loan from 30 to 40 years.

But the number of people demanding a loan for 20 to 40 years had gone down from 70 per cent in 2003 to 59 per cent now.

Frank Salt, chairman of Frank Salt Real Estate, said Malta had a good and healthy property market which should be retained. However, if one was greedy, one did not sell.

The property market, he said, regulated itself. Seven thousand new high standard properties were being put on the market. These had to be marketed abroad.

Seventy per cent of property at Portomaso, he said, was sold to foreigners. Mr Salt said the construction industry could not continue at the same pace without outside purchases.

Short distances in Malta did not make it necessary for locals to change house with a change of jobs and the property priced realistically was what was selling and selling well.

Malta, Mr Salt added, had to be promoted as a destination anyway so it could be sold as a place where one could come to settle down or retire.

Harry Vassallo, chairman of Alternattiva Demokratika, said that the opinion that property across the board was overpriced was there. But it was not an option to rent property in Malta and there were many vacant places which were neither up for rent nor for sale.

There was an artificial scarcity for several reasons and because prices kept going up, he said.

A completely new rent regime was needed. AD was pursuing this issue but it was not in its power to change the law, except through a referendum. A White Paper, he said, was hopefully to be published in January.

Francis Vassallo, president of Francis J. Vassallo & Associates, said that just because Malta was a small island did not mean that the real estate market was always a boom market. So one had to exercise caution so that the country would be on the right side of the fence if problems arose.

He said that an expansionist fiscal and monetary policy caused a boom. A fiscal measure could also rock the market. If there were economic growth in the country, property sales would go up; in case of a recession they would go down.

He said that, recently, there had been an artificial demand for property due to the fiscal amnesty given by the government which led to an amount of money coming into the market.

Mr Vassallo said that any sea view commanded a prime location. So Malta was a quality location and it had to be maintained as such. It was good for the country to have quality complexes.

Malta, he added, was viewed as a prime location also because of its tax advantages.

If there were a bubble, he said, those hit would be the developers - those who would be made to sell - not the homeowners. Families would help out the homeowners. So developers should only borrow as long as they could sustain the payments so as not to be caught with their pants down.