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Matthew Vella
Mixed reactions greet government’s initiative to get the Malta Financial Services Authority to probe banks’ lending terms in a bid to survey the steep rise in property prices.
Real estate players are unsurprisingly not concurring with the plan to check up on banks to have a better look at the increasing property prices. Banks remain the sole way by which first-time buyers can hope to purchase a property.
But Parliamentary Secretary Tonio Fenech told The Times earlier last week that the government was considering introducing partial controls over lending terms.
The clear concern is that easy and accessible credit is leading to more inflation, as well as grave speculation over property prices.
Only earlier this year, the Central Bank raised the central intervention rate by 25 basis points to 3.25 per cent, after external reserves resumed their decline in March and early April. The decision was aimed at curbing excessive credit growth and dampen resulting inflationary pressures.
Malta remains one of the most densely populated areas in the worlds, where land is a relatively expensive asset. Rising house prices generally boosts banks’ propensity to lend further and increase domestic credit. It is now clear that observers fear an increase in the probability of financial instability if falling house prices affect bank collateral and curtail banks’ capacity to lend.
Property market agents speaking to other sections of the press said it is the 2003 repatriation scheme, which brought millions of liri back to Malta from foreign asset funds, that has contributed to added pressure on property prices.
Joe Lupi, managing director at Frank Salt’s head office, agrees: “If it wasn’t for the banks, it would be impossible for first-time buyers to actually purchase homes. The fact that there is liquidity in the market is attributed to the 2003 repatriation scheme and the fact that other alternatives to invest money exist – property is certainly appreciating in value so it doesn’t make sense leaving your money in the bank with the risks of inflation.”
Lupi acknowledges the high prices of property today, although he reckons the market has now stabilised. For first-time buyers, he says, the problems are still there, and he hopes a culture change will make more people buy smaller spaces.
“They usually have their parents asking them how are they going to live in a one-bedroom house,” Lupi says.
It would appear that even government wants to see a balance between the use of landmass that is being usurped by property developers. Lupi says he hopes the liberalisation of the rental market will free up dormant housing stock and maybe even push prices downwards.
“If the market is liberalised, I am sure it will ease property prices. Rentals would certainly be revised upwards, but the increased supply and the shift of demand from purchasing to renting may cause property prices to decrease. We always expect landlords would want an annual four per cent return on their capital at least,” Lupi says.
“Prices are stabilising. Banks should not be stopped from giving special arrangements to first-time buyers.”
Economist Edward Scicluna takes government’s side: “It is something I agree with, because something has to be done directly with the banking sector, but you have to see how it’s going to be done without creating problems. It’s not easy – barring imposition, I’d say government should go for moral suasion, getting banks to restrict themselves voluntarily, and persuading to come into agreement with them over the matter.”
Total house loans in Malta have increased exponentially over the years, reaching Lm512 million in 2004’s third quarter – house prices increase on average by seven per cent every year between 1980 and 2004.
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