The rush for Maltese property – the winners and losers

By Matthew Vella and Julian Manduca

There is little doubt that joining the EU would increase demand for property in the Maltese Islands.

Come May 1 2004, and provided Malta joins the Union, businesspeople, diplomats and ordinary citizens could be looking for a place in the sun within the confines of the EU.

The property market is already feeling bullish and it has experienced a mini-boom over the past months. Perhaps in expectation of EU accession?

Frank Salt Real Estate Managing Director Joe Lupi told The Malta Financial and Business Times that sales had escalated recently and he singled out Midi's Tigne´ point development as an influencing factor. Other estate agencies however, told this newspaper that sales have been good across the board.

Increased prices will come as good news for anyone who owns property, especially those that own a lot, but bad news for people owning no vacant property and wanting to purchase their first home to live in, or property for commercial purposes.

Higher prices will be especially frustrating for property owners that have rented properties out in the past and receive only miserable rents.

Prices in Malta already increased substantially within the last 10 to 15 years, but two major estate agencies confirmed to The Malta Financial and Business Times that business has been especially good over the last few months.

The exact reasons for increased property prices have been the subject of much debate and the answers will depend on whom you ask. Estate agents claim that property remains the best investment and while supply clearly outstrips demand, it is said there are not enough of the right sort of properties on the market for those looking to buy.

Although the 'Property for Sale' pages are full, people are still looking for different dream homes.

Nearly everybody, except tenants, agrees the antiquated rent laws need radical change to make way for a rental market for Maltese and for vacant properties to be put to good use by imposing a hoarding tax on vacant property to free up vacant stock.

In the present situation many property owners wait until more prosperous foreigners come along, a trend widely expected to increase should Malta take up EU membership.

The unrealistic rent laws and the quirky workings of the Maltese property market have kept anything up to 24 per cent of houses empty. On the other hand, credit availability has been one of the most remarkable influences on property houses, making property acquisition for first-time buyers a reality.

Unbridled speculation remains a big problem for Malta. Amongst the main culprits are estate agents, dealing on their own behalf, and contractors speculating on property they build and know will remain empty for years.

Joe Lupi told The Malta Financial and Business Times that on average, property has appreciated between eight to ten per cent during the past 10 to 15 years.

"The increasing demand for property in certain areas has to be addressed by increasing supply. Otherwise prices will shoot up.

"There could be a slight increase if Malta joins the EU, as some property owners may believe that foreigners would rush in to buy property in Malta once the country joins.

"I believe that eventually prices will stabilise. Like any other client, a foreign client will buy property after having seen other locations in the Mediterranean and, unfortunately, countries like Spain and Cyprus in some respects offer cheaper properties than Malta."

Dhalia Operations Manager Andrew Gatt said the Structure Plan for the Maltese Islands has greatly restricted the land available for building in Malta and Gozo, resulting in an escalation of the prices of land. Mr Gatt says Malta’s accession in the EU is not expected to have a direct effect on property prices, suggesting that only traditional demand and supply patterns will put pressure on prices.

Contrary to Mr Gatt's claim, MEPA officials have confirmed that vast tracts of land in the development areas have still to be built. About 60 per cent of the land allocated actually remains unbuilt.

Negotiations over free movement of capital with the EU still limit non-Maltese nationals to own just one property at a cost of not less than Lm30,000 for flats and not less than Lm50,000 for houses. They will only be able to buy their second property after five years of residence on the islands.

The BICC Working Group’s average prices signal large and fast-growing price increases in property prices since 1989, some increasing by as much as 400 per cent in the case of villas and bungalows.

Andrew Gatt says the derogation obtained by Government means nothing much has changed in terms of benefits for EU citizens purchasing property in Malta. The same restrictions will apply: "The only difference is that EU citizens can rent any property which they own in Malta, even outside designated areas."

Gatt explains why property prices have increased: "Property is the historically-preferred form of a sound and solid investment. Many individuals in Malta prefer investing their money in property rather than equities or any other type of investment. This has enhanced the demand for property, pushing prices upwards over the years."