More than half of all promise of sale agreements are now being extended beyond their original date, with worker shortages and bureaucratic delays stalling the process of buying a property, industry insiders say.
According to QuickLets and Zanzi Homes CEO Steve Mercieca, the rate of extensions has increased compared to previous years and is slowing final sales to a crawl.
Mercieca was reacting to recently published NSO data showing that there are more promise of sale agreements than ever before but fewer properties are actually being sold.
This year-on-year decline saw drops in residential property sales of between 14 and 19 per cent during each month between May and July.
According to Mercieca, the slowdown in the number of sales is down to an industry riddled with delays and inefficiencies at every stage.
He said the issue is not that fewer properties are being sold but that it is taking longer than ever for the sale to come through.
Mercieca’s internal data suggests that the number of promise of sale agreements that fall through has actually decreased in recent years. While, until a few years ago, a fifth of all promise of sale agreements failed to translate into sales, this is now down to a little over one in 10, he said.
However, over half of all promise of sale agreements are being extended, he said, some of them multiple times, usually because of administrative and bureaucratic procedures that have not yet been completed.
Mercieca says that this is a higher rate than in previous years, mostly driven by an ever-increasing worker shortage at all levels of the process.
He claimed there are too few administrative and professional workers to manage the bureaucratic procedures tied to buying a property and not enough skilled trade and construction workers to carry out works on properties that would see them completed before the promise of sale period lapses.
Mercieca says that these issues are exacerbated by systematic failures making the procedures slower and more cumbersome than they need to be.
“Due diligence on the buyer is currently done by three separate entities, the notary, the agent and the bank, instead of being streamlined and carried out once.”
To make matters worse, Mercieca argues, property records are poorly documented and rarely digitised.
“Properties don’t even have a registration number. If you buy a fridge you’re given a 300-page instruction manual but if you buy a property you’re given the keys and nothing else.”
Excessive bureaucracy driving lower figures
Developers appear to echo Mercieca’s views. Malta Developers’ Association chair Michael Stivala told Times of Malta that the unusual trend reflects the excessive bureaucracy and administrative burdens hardwired into the construction sector, bringing about delays in construction projects.
These delays, Stivala says, range from longer waits for planning permits to be issued, to bureaucratic issues when dealing with suppliers, energy providers and various public bodies.
Stivala argues that the average length of projects has doubled over the past five years. A project that previously took two years to complete can easily take four or five years today, he said.
This, in turn, means that it takes ever longer for promise of sales agreements to be converted into actual sales as they are often extended until permits are issued or the project is completed.
Sales figures lag behind promise of sale agreements
A deeper dive into NSO’s data shows that the overall number of promise of sale agreements completed in the second quarter of 2023, the most recent period for which complete data is available, was higher than most quarters since 2018.
While an average of 3,281 promise of sale agreements were recorded every three months between 2018 and 2022, this figure was 3,503 between April and June of this year.
By comparison, only 3,007 properties were actually sold during the second quarter of this year, significantly fewer than the 3,354 averaged over similar time periods throughout the previous five years.
This means that while, previously, the number of final sales registered tended to outnumber the new promise of sales agreements during the same period, this has now changed.
Put simply, while the number of prospective property sales used to scramble to keep up with the sheer number of properties being sold, the opposite is now true.
More to the data than meets the eye
The most recent economic outlook published by KPMG earlier this year suggests the delay between a promise of sale being signed and the property being sold makes it tricky to get a clear picture of the real situation.
According to the report’s authors, “there is a lag between the issuance of a development permit, the date of the promise of sale agreement and the date of the final deed sale, which can easily exceed two years”.
In any case, the report argues, other issues also muddy the waters.
For one thing, NSO data only reflects the total number of promise of sale agreements, not the actual number of properties listed within the agreements themselves. For instance, KPMG says, “a single promise of sale agreement may involve more than one property”, although this is rarely the case.
Secondly, not all permits issued are actually developed, so data about the number of construction permits issued may lead people to believe that there are more residential properties than is the case in reality.
Furthermore, data about promise of sale agreements does not distinguish between newly constructed properties and those that were built “years or decades earlier”, making it difficult to assess whether this reflects a true demand for new housing.