Filling the social investment gap

The Foundation for Affordable Housing has a very clear mission: to make housing affordable for people. Our vision is for all working people to be able to find a suitable place to call home, whether they want to buy or rent.

The Maltese property market is alive and kicking; however, the minimum income threshold required to join the market is continuously rising. Today, €25,000 in gross annual income is needed for a person under 40 to buy an averagely priced apartment, which, considering the country’s average salaries, can be quite challenging.

In the absence of viable investment alternatives to property, second- and third-time buyers are in direct competition with first-time buyers and others who are on the lookout for property for residential purposes. The first-time buyer can never win in this game. However, the investor wins at a high price in the form of initial capital outlay, risk and direct exposure.

New tools and remedies are required.  Considering the success of the Green Bond recently issued by the Water Services Corporation, one naturally questions what keeps the promotion of sustainable financial products, including, but not limited to, social bonds, from taking shape.

Currently, the country lacks a legislative framework for sustainable finance products – a framework which can facilitate socially innovative projects including those for affordable housing.

The market requires financial products which allow a wider pool of smaller investors to join. These smaller investors are impeded due to the prohibitive initial capital outlay required. A well-regulated Real Investment Trust (REIT) framework, guided towards addressing the imbalances in the market, may offer the solution.

REITs allow smaller investors to invest in property with lower, diversified risk, as the management of the assets inside the REIT is undertaken by professional enterprises. REITs are provided for in Maltese law. However, in the absence of any fiscal incentive package to those willing to invest, it is unlikely that such instruments become competitive.

Affordable housing projects become more financially feasible when forming part of a wider, mixed real estate portfolio inside a REIT. Regulation achieves two things; the control and oversight to provide peace of mind to investors and the shaping of how these investments can achieve maximum value for society in a sustainable, socially beneficial way.

€25,000 annual income is needed for a person under 40 to buy an averagely priced apartment- Jake Azzopardi

For socially responsible investors, who reject short-term, high-risk and cheapest route to returns, they have the advantage of knowing that, while they invest and achieve a return, they also know that they are doing something good.

ESG and impact investing have permeated business culture sufficiently to mark a shift in the archaic public perception that sustainable goals are for the state alone to attain. Nowadays, business understands there are core principles it needs to live by and social contributions to attain alongside profit-making.

Consultations that we have conducted throughout the past year have uncovered the Maltese private sector’s willingness to continue to invest and to invest in worthy causes. Appropriate instruments are required for this to be facilitated.

We seek to leverage the unique position of the foundation – between the private and public sectors – to make collaboration work. We are prepared to address the gap in social investment by applying our expertise in the social field, the knowledge of the market we represent and the guarantees of the values we are obliged to promote and maintain.

The financial products that Maltese investors are asking for require measurability of a project’s social impact – an element we support through data that we regularly collect and publish.

Our ability to understand the positive social impacts of investing, along with our understanding of both financial markets and the affordability of property markets, place us in an ideal position to facilitate the alliances between institutional and small investors to achieve our vision of all working people finding a suitable place to call home.

We will do so in a financially sound, socially responsible and sustainable way.

Jake Azzopardi is CEO of the Foundation for Affordable Housing.