Property as an investment

Brick and mortar ranks among the least volatile of all investment alternatives. But property in the 21st century has become much more than just a passive investment. In fact, today, construction technology has turned property into a highly complex asset, full of expensive, highly technical equipment, ranging from elevators, to security systems, to fire detection and suppression technology, to intelligent lighting and much more. These existing and rapidly emerging technologies are all part of the overall package one should reasonably expect when investing in property. And, for those investors who expect to prosper in the business (and this includes owner-occupiers), this is exactly what new buyers and new investors now expect.

Expensive technical infrastructure

Even with normal use, high end equipment depreciates rapidly especially in an island like Malta. The impression that quality equipment lasts forever, if left to its own devices, is a very costly mis-impression. As estate managers, Realhouse Management Ltd. was established 16 years ago to operate exclusively as a professional building manager. And during that time, we have always found it difficult to convince owners of apartments and investors in commercial properties that only through continuous maintenance and management can the operational life span of such expensive equipment be extended and, in turn, the value of the property themselves be preserved.

Would you care for your Maserati?

This ‘preservation of value’ can only be achieved through the introduction of well-drafted, preventive maintenance-and-service agreements - supported by regular physical inspections and certified by licensed professionals in the relevant field. And, it is a proven reality that this maintenance can be best coordinated, cost-controlled and validated through the efforts of an experienced and technically-competent property manager (whether Realhouse or another genuinely professional property management company).

Worth more next year than last year?

Beyond the challenges of convincing owners of the obvious value of routine maintenance, the industry standard concept of establishing annual contributions to sinking funds and capital funds to pay future expenses is an even harder sell to some. Unfortunately, the aspiration to keep annual maintenance costs unreasonably low is deeply incompatible with a desire to achieve increased property values over time. It is impossible to enjoy the benefits of one (increased values) without the relatively minimal necessity of the other (recurring maintenance costs). Professional (especially) Institutional investors have understood this ‘fact of life’ for a long time, but this traditional wisdom must eventually wash up on the shores of our own Maltese property market.

Rules of the road

Sadly for our market and for our country, the estate management sector in Malta remains highly unregulated. And, as leaders in the local market, Realhouse continues to be challenged by the market’s “quick buck” culture which, in recent times, has shifted towards the self-defeating pursuit of cheaper management and lower maintenance fees. But this inevitably leads to medium-term self harm - because end-users (purchasers and tenants) increasingly demand high quality services - not corner-cutting which any reasonably sophisticated buyer or investor can “see and smell” within seconds of a walk-through. One can only hope - for the longer term good of the market in Malta - that the current review of the Condominium Act will result in an overdue, desperately needed step towards much better regulation of these services.

A better future for all

If new regulations are enacted, some of the initial changes that we might expect to see should include: (i) an equitable and fully transparent apportionment of costs amongst all property owners and (ii) a ‘dispute resolution system” designed to offer quick, fair, efficient and professional solutions to short term, ‘penny-wise-but-pound-foolish’ decisions that, too often, put all property values at risk.

Lastly, if our fellow countrymen need (and deserve) anything, it is a new calculus which drives our economic perceptions - to which all property values are closely connected - away from the proverbial Two Star strategy toward a much more psychologically, visually and financially rewarding Five Star strategy. Everyone (and every structure) will be dramatically better off as a result.

Andrew Xuereb, founder-director of Realhouse Management Ltd.