For decades, every administration has treated the property development industry as the sacred cow of the economy. The knock-on effect of construction stimulates economic activity in various sectors.
Still, little consideration is given to the collateral damage that this urge to build causes to societal well-being.
To understand the socio-economic impact of the construction industry, we need reliable information that is gathered scientifically and free from the promoters’ hype that often hits the media headlines.
If one were to follow the regular Malta Developers’ Association announcements, it would appear that the property market is again going through another boom despite the economic uncertainties created by the pandemic and the challenges being made to the country’s economic model.
So far, there is no property index that guarantees that the information it contains is an accurate and fair picture of the current situation of the property market.
The Central Bank of Malta and the National Statistics Office publish property indices that are useful but do not give a comprehensive view of the property price dynamics. Sadly, the local property market remains quite opaque for the objective analyst.
Statistics published by property market analysts Djar and EY show that the overall average asking price for properties in the first quarter of 2021 stood at around €400,000. Data on deeds for the same period, collected through the nSO, had an average value of €200,000.
How can one draw a meaningful conclusion from these counter-intuitive statistics?
As in any industry, property development is driven by the forces of supply and demand. The price dynamics are far more complex. There is no doubt that the supply of new properties is constantly increasing.
The Planning Authority seems to feel no urge to limit the issue of building permits for socio-economic reasons. Some PA senior executives would have us believe that the scale of property development is a sign of modernity and that people have to tolerate it.
There is some anecdotal evidence to explain why the property industry keeps growing at impressive rates. The Maltese have an emotional attachment to investment in real estate which they believe in the long term will continue to appreciate as the availability of land for development will always be limited.
The low return of financial investment and the prospects of galloping inflation in the coming years strengthens the belief that property investment is almost risk-free.
The property development industry caters for two types of customers: those seeking to buy property as their residence and investors who see a better return in putting money in property than in financial assets.
The real estate industry is renowned for its communication hype that aims to create the impression that getting on the bandwagon of capital appreciation through property investment is the way to go.
Unfortunately, there is too little objective information to help investors and economic analysts understand the state of this industry.
We need to know how many vacant properties remain unsold, how long on average vacant properties are spending on the market before they are sold and how prices are moving due to the interaction of supply and demand.
We also need to understand the risks the country is taking by encouraging property development projects without quantifying the social costs of overdevelopment.
Only an objective scientific study of the property market drivers can give meaningful answers to these crucial questions.