False hope fuels artificial property price hikes

- bank takes cautious approach to real estate bubble

One high level banker speaking to this newspaper sees Malta’s property market as one big bubble with prices shooting up artificially in the hope that Europeans will descend en masse to scoop up Maltese properties regardless of the asking price.
The banker warned that the prospect of increased demand on the part of Europeans might be nothing more than a "false hope" that might eventually lead to the bubble bursting after the post accession reality dawns on the property market players.
The debate, which has been raging since the 12 April elections, in essence boils down to whether the supply of thousands of vacant properties scattered across the Islands will be met with an equal demand from the European market.
Those with a bottom line interest in the issue are taking the matter in hand and are making policy decisions based on their analysis of the situation.
The banker told The Malta Financial and Business Times that every country looking to join the European Union has seen real estate prices rising, "to a point at which the bubble would appear about to burst."
He says: "While I’m not sure of exactly what will happen here, our information shows that there are a lot of vacant properties for sale or rent and I would say that today’s prices are on the upper range of the market.
"However, I wouldn’t be surprised if local real estate and rental fees fall after Malta accedes to the EU. Everybody expects that thousands of foreigners will come to Malta to purchase property but, when you see how many thousands of vacant properties are on the market, you cannot expect that number to be matched by prospective buyers from the EU."
Citing similar scenarios that led to the collapses of real estate markets in Japan, Hong Kong and Singapore he adds: "Prices appear to never go down in Malta either. In fact, they have been rising consistently for a number of years and at the moment they have reached a certain level."
He compares the price of a nice flat in the heart of Sliema with that of one in a nice part of a major European city and finds the prices to be equal. On the other hand, prices for property in the heart of Budapest – capital of Malta’s fellow accession country Hungary – are higher than those in a European capital and prices in Prague are even higher than those in Budapest.
The state of affairs calls for caution and a certain kind of analysis to be carried out when granting home loans and other real estate-linked loans.
The banker explains: "We as a bank are being very careful in providing people with home loans and loans for real estate. We are calculating the security of the property on a level that we believe would represent its real price, not its artificial price. These figures cannot be calculated on the buying price of today’s real estate, but instead must be done with a view to when the property bubble could burst."
And Malta is not alone in the list of EU accession countries facing real estate worries. One good example is the Czech Republic, where the Association of Real Estate Agencies predicts a crash on the real estate market in a year’s time – shortly after the country’s accession to the EU. This contradicts previous forecasts of a sharp rise of Czech real estate prices after the country joins the European Union.