14 September 2005

The Web

Angelo’s battles

Thirty years after his humble beginnings in the construction industry, Angelo Xuereb’s business empire today employs 550 people with a portfolio that ranges from construction to the development of luxury apartments, hotels and old people’s homes.
“I never believed in putting all my eggs in one basket,” he says. And for good reason seeing that he has had numerous skirmishes with environmentalists over a number of controversial projects.
Xuereb lost his last battle for a golf course at Tal-Virtu in Rabat, something, which he is still very bitter about. “I consider myself to be an environmentalist. I am not a fundamentalist but I do love the environment and I try to make my projects as sustainable as possible,” Xuereb says.
He believes Tal-Virtu is the best site for a golf course and still wonders why the Malta Environment and Planning Authority refused the application despite the positive outcome of the EIA.
Xuereb laments the lack of available labour in the construction industry and insists it is time to import foreign workers. He also disagrees with any proposal to restrict credit terms for people wanting to buy property. “Government should not obstruct the only sector that is performing. I believe that the market drives itself,” Xuereb insists.

The AX Group has a diversified portfolio. What is the philosophy behind the expansion into different areas of operation?
Every person has a gift from God and the challenge is to identify that talent, nurture it and make good use of it. At a very young age I used to say that I wanted to become one of Malta’s leading businessmen. I started off in construction but there is a limit on how big one can grow with construction alone. Many of the assets used in construction depreciate and I never believed in putting all my eggs in one basket.
After about five years, around 1980 I decided to diversify. I considered entering manufacturing but discarded the option because despite our labour being cheap at the time, the importation of raw material and its re-export was going to prove uncompetitive in the long term when wages would have approached the European average.
That is when I decided on diversifying into tourism. Taking after my father I also started getting involved in development rather than simply working as a contractor for others.
I believe in quality developments.

You have had your fair share of squabbles with environmentalists and residents. Can a balance ever be found between development, progress and maintaining a pristine environment?
I may shock you but I consider myself to be an environmentalist. I am not a fundamentalist but I do love the environment and I try to make my projects as sustainable as possible.
We need to have a better environment and we also have to have better development. All my developments are built in such a way to allow for open space. I do not like building every square inch of the site.
I recall when I applied to build Capua Hospital. All the people of Sliema were against me because they said I would be suffocating them with the development of a hospital. Today many people thank me because the development has a lot of open space, is pleasing to the eye and has also raised the value of the property in the vicinity.
Look at the Valletta Waterfront project in which I am involved. It is a gem of a development.
I admit to loving development but my projects try to embrace open space. A balance can be found but those who are fundamentalist in their environmental views will oppose anything.

But with limited land resources, can we afford taking up more virgin land to build upon?
Development cannot be stopped. There were governments in the past that tried to stop progress but they eventually had to give up. Progress is inevitable as people better their standard of living.
As for the taking up of virgin land for development, since the creation of the planning authority in the early nineties there has been little development outside the identified building zones set out in the structure plan.
The structure plan at the time had said that the building zones had enough in-fill sites to cater for development over a span of 20 years. Apart from schools, few developments have taken place outside the identified zones. There has been some industrial development but not much more.
What has happened is that a number of properties in town centres have been knocked down and replaced with apartment blocks catering for smaller accommodation units.
Something I don’t agree with is government’s proposal to identify new sites where micro industries such as panel beaters, sprayers and other work shops could be transferred to. I am not against the concept because even when I was mayor of Naxxar I spoke of the need to relocate these small businesses to a micro-industry park outside the locality where they will not be of a nuisance to neighbours.
But these parks should not be constructed on virgin land as is being suggested by government. These should be transferred to rehabilitated disused quarries, areas that are already committed.

Parliamentary Secretary Tonio Fenech has recently asked the financial services authority to investigate the credit terms of banks in relation to loans issued for the purchase of property in a bid to curb spiralling prices in the real estate market. Property prices have increased exponentially since EU membership and where luxury apartments have been constructed such as Verdala, Portomaso and Tigne these have had an inflationary spin off effect on neighbouring properties. Are property prices out of control?
I do not agree with the parliamentary secretary’s stance to try and control property prices. The real estate market is the only sector that is performing well at the moment. If government decides to curb this sector in one way or another it will have an impact not only on construction companies but all the ancillary activities related to the industry.
More than 80 per cent of bank financing is currently linked to the property market, with loans going either to the developer for construction or the end buyer. It is a very high portion but it is also an indication that the other economic sectors are not doing well.
Government should not obstruct the only sector that is performing.
I believe that the market drives itself. It is all a question of demand and supply.

But the rules of the free market don’t seem to work as they should in the property sector. We have an over supply of properties and yet prices are not dropping. Why?
For the last 30 years there have always been empty properties on the market. You will always have a percentage of vacant properties. But we also cannot ignore the fund registration schemes of recent years which resulted in large amounts of money being repatriated. Many invested these funds in property, either to upgrade their current residence or as an alternative form of investment.
But these are one-off situations. In the majority of cases property is being sold, there is a demand for it. The unfortunate thing is that certain properties are being sold at similar prices as those of luxurious apartments.
Apartments at Verdala mansions are being sold at Lm1,000 per square metre. Portomaso and Tigne are also selling property within that price range. But there is a valid reason for these expensive prices. They are luxurious complexes, finished to the highest levels. People are paying for more than just an apartment.
But there are other developers who construct a block of 10 apartments, with small lifts, long narrow corridors and restricted space and try to sell them off for a price that is slightly less than the luxury apartments. There are apartments in Sliema being sold for around Lm700 per square metre and the profits made by these developers are far higher than ours because the investment made is much less.
The problem is that there aren’t professionals to guide buyers when shopping around for a house. Malta lacks asset evaluation companies. When somebody wants to sell, the person simply brings over an estate agent and asks him for a valuation. Obviously, estate agents also have an interest in raising the value of properties because of their commission. Furthermore, the valuation is based on the value of surrounding properties and not on the true value of the asset at hand.
Asset valuation should involve various criteria such as the quality of rock the property is built on, what heat and sound insulation has been used, what water proofing was applied, what type of environment surrounds the property and in the case of apartments what type of maintenance agreements exist for tenants. It goes into detail to determine the true value of the property.
The problem at present is that a good number of apartments are over priced and being sold at similar prices to luxury apartments that offer better value for money.

But who should be responsible for such valuations?
Currently there is nobody who performs this function and I don’t think it is government’s job. It is something the private sector has to do. First time buyers unfortunately just visit the property and simply value it according to the physical attributes they can see. No attention is given to detail.

What if government decides to introduce a windfall tax on property developers?
God forbid. If I’m not mistaken during Gorg Borg Olivier’s time a withholding tax on the property market had been mooted and the industry just stopped functioning. Even just mentioning the possibility of introducing a tax could trigger stagnation. The industry is functioning well, it shouldn’t be obstructed.
There will come a time when prices will stabilise even if they will not dip. We had a similar situation during the eighties when property prices remained stable for a number of years and in some cases where developers were overburdened with vacant dwellings prices even fell.

A problem you often raise is the lack of skilled labour in the construction industry. What is the solution?
I represent the association of building contractors and this has been a stickling issue for the last five years at least. We managed to prove that Maltese people are not interested in taking on laborious jobs such as those required in the construction industry.
A couple of years ago we had requested ETC to provide us a list of unemployed people who could have possibly been employed as skilled labourers. From around 600 people, 200 never turned up for the meeting, a further 200 came but said they were not interested in working in construction, another 200 accepted a trial.
When we came to the second interview, one third didn’t turn up, another one third informed us they weren’t interested and the rest we simply apportioned between the contractors present.
Only three turned up for work the following day and they only lasted for a week. We were back to square one.
Last year ETC again informed us that there were 300 people registering for work in the construction industry but when we organised a meeting for them only 20 people turned up and nobody wanted to work in construction despite the availability of jobs.
The Maltese, just like their European counterparts are not interested in laborious jobs even if the wages offered are good.

Is the wage factor a reason why people give up working in the construction industry?
It’s not the case. A skilled worker can earn up to Lm100 a week.

Should we import labour?
Government has finally realised the problem and by the end of August we were given the chance to regularise foreigners who were employed in construction. There are serious rules now in place that bar anyone caught employing foreigners illegally from competing for government tenders. It’s good as long as the processing of work permits requested by companies for foreign employees does not take ages.
We have no option but to employ foreigners. Government has to weigh the benefits of allowing 200 or 500 foreigners to work in the construction industry.

MEPA is a contentious issue for all those involved in development and construction. Some say the authority is strong with the weak and weak with the strong. Others argue that whether a project is approved or not all depends on the architect employed by the developer. Where is the problem?
The authority functions with two weights and two measures. A person applies for a permit and it is refused while a similar application for a property adjacent to that which was refused gets the go ahead. Some decisions cannot be explained.
The Verdala Hotel, an investment worth Lm20 million, is still without a full permit after 11 years. The Duke of Edinburgh hotel in Gozo was a similar story. Permits were never issued and I sold it. Funnily enough permits were issued in just four months after I let go of it.
I have a complex for elderly people still waiting for a permit after 13 years.
Capua Hospital took three years for the permit to be issued when St Philips Hospital had its permit issued after six months.
The Victoria Hotel has been waiting for five years to have the permit for an extension issued. I requested some changes two years ago because I have an international operator involved and we have been waiting ever since to get a final decision.

Could it be that developers like yourself do not involve MEPA at the early stages of planning and design with the consequence that planning problems crop up in the later stages delaying the whole project?
That is what we do. When we request MEPA’s help in the initial stages we find co-operation. But then changes are requested and the process starts getting delayed.

Are you still hurt about the golf course permit refusal?
Of course. In the terms of reference I had to tackle 95 issues over four seasons. The EIA cost me hundreds of thousands of liri and the report concluded that on balance the golf course proposal had more positives than negatives. But I was requested by MEPA to remove the final comment. And then the church spoke on behalf of what it claimed were 200 farmers when not one single farmer earns a living off that land.
I still believe that the Tal-Virtu area is the best place for a golf course.
Construction and tourism are two industries opposed to each other on the quality chain. What can be done to regulate construction sites and make them less of a nuisance for tourists and residents alike?
I was appointed by the building industry consultative council as a chairperson of a technical committee to study this issue. The committee came out with a number of recommendations.
The proposals went further than simply suggesting decent working times for construction sites in tourist zones. We suggested proper screening of all construction sites and improvements to work techniques to avoid dust choking a whole neighbourhood. We also suggested proper walkways for safe passage of pedestrians and the use of two way radios for large sites to avoid workers shouting from one end to another.
We entered into all of these issues and the recommendations made should improve the situation immensely. But for some reason or another government has simply slept on these proposals.
We forwarded them to the minister for tourism and the minister for infrastructure. Till today we have not received reactions. The proposals were presented before the summer in the hope they would be implemented for the summer months at the height of the tourism season. But nothing happened except for a legal notice that established the working times for construction sites in tourist zones.
I don’t know why all these meetings, committees and recommendations when nothing gets done as a result. Proper regulations should be in place and enforced because I do not exclude there are small developers and contractors who simply act like cowboys.

Angelo Xuereb was interviewed by Kurt Sansone

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