Interview | Wednesday, 16 April 2008

Crossing over to Madliena


The story of how Andrew Cross first set up shop is as curious as it is unusual. In the late sixties, when he qualified as a chartered accountant, Andrew married London singer-songwriter Barbara, who at the time worked for the hotel and catering chain Forte. Known to be avant-garde, Barbara’s employers were sympathetic to the incompatibility of the young couple’s working hours, so they provided Andrew with an office on-site in order to minimise their time spent apart. Thus Andrew’s early years were spent working out of such interesting locations as the grounds of Hampton Court Palace and The Serpentine in Hyde Park.
Establishing himself as the founder and chairperson of Andrew Cross & Co. Accountants of London, nowadays he also enjoys the benefits of property investments made over the years, among which the recently acquired Busietta Gardens in Madliena, now renamed Madliena Village.
“We progressed to where we are today thanks to substantial investment in property,” he said, explaining that his interest in real estate started years ago with the refurbishment and development of apartments in South London.
“We had enough experience in the field before investing in Malta,” he added.
It does not happen every day that foreign investors throw in such significant investments into Maltese property at one go and in a single location. But Cross explains that his decision to acquire the luxury-apartment blocks in Madliena was fuelled by logic, after years of consideration and shopping around.
“We chose this property in particular mainly because of its location, which I consider to be one of the most prime in Malta.
“We first came to Malta five or six years before EU accession, as we were quite sure that the economy of the country would improve. We were looking for an investment in real estate because we have always been involved in property. Other than that, we never considered any other sectors. This is also because I think there is little one can really invest in on the island.”
Asked to elaborate on his last statement, Cross said: “You require a million permits if you want to blow your nose here. You would have to partner up with a local if you want to move further, and up to a certain degree, this is what we have done. Our Maltese partners are not shareholders in the company, but they are subcontracted to manage the property. They have done an excellent job over the past three years.”
He was here referring to Guido Mizzi’s AG Design, the company assigned with the day-by-day management and the development of Madliena Village.
Cross does not mince his words when asked about some administrative difficulties he encountered while setting up in Malta. But on more general lines, does he find it easy to deal with the Maltese?
“We do,” he said without hesitation. “The plus point is that Malta is an English speaking country, making it fairly easy to deal in. The legislation is also very UK orientated, making us feel more familiar with legal practices. Although it was different when we first came, the banking system has also developed now.”
Not every re-branding process turns out to be successful. A change of brand name may at times result in a in a situation where generally, people would still refer to the brand by its old name. Are people still referring to the property by its old name? How did the re-branding process work? And more importantly, why was the name of the property changed?
“We did not re-brand immediately,” Cross said. “As soon as we arrived there was a change in taxation laws, so before we went public and carried out a branding exercise, we decided to apply for a Special Designated Area (SDA) permit.”
SDAs are assigned to a very limited number of properties, as non-residents interested in purchasing property covered by a SDA permit would be exempt from applying for personal permits allowing them to purchase property in Malta.
“What followed was the total re-branding of the property, which I think has worked,” he continued. “Everyone now calls it Madliena Village, knowing it’s different to the previously owned Busietta Gardens. We have also noticed a significant change in the way agents approach us – as we are now taking the major agents without any problems, whereas in the beginning we used to find it difficult.
“I think what helped us move further was the fact that we always kept promises. Gone are the days when apartments are sold in shell form. It has always been our policy to sell the apartments in a finished condition. And if we promise to sell a finished apartment, it’s going to be finished to very high specifications, as the estate agents working with us may witness.”
The re-branding exercise was not simply a matter of changing the name and logo. Cross, assisted by his Sales and Marketing Director Kevin Abbot and AG Design, looked into every detail of the product that was not functioning the way it should, fixed it and let their current and prospective client-base know. The name change was just the cherry on the cake.
The property has also gone through significant changes, including the development of two new blocks. But why was there such a huge controversy over the setting up of the original Busietta Gardens and the new owners are now getting away with a new development?
“The plan to build the two new blocks was already there before we actually went ahead with it,” he explained.
“We have also completed the internal roads. We also did away with the red paint covering the building and set a more natural, softer colour on a graffiato façade. The old colour really made the building look dated. We also worked on a condominium agreement for residents, as there was nothing of the sort before we came in.”
With all this, was Cross hinting that the residents were not happy with the previous ownership?
“Yes you can say that,” he straightforwardly answered. “When we came in we could gather that they were a little upset, but now it’s completely an open book with residents.”
Sister newspaper MaltaToday two weeks ago featured a story wherein key-players in the real estate industry revealed that January and February have been very poor months for property sales in Malta. What is Andrew Cross’ take on this? Does it scare him? Apparently not.
“The main reason for those two months in which property didn’t do very well was mainly due to the elections – which is also what agents said. Also, I think the Euro changeover influenced the market in those months, but I can’t see anything else really. I think this was the background to it.”
With perhaps the exception of St George’s Park and another few blocks, there were no luxury apartments in Malta at the time when Busietta Gardens were being built. Now all prime-locations are chockfull. Wouldn’t this situation impact on Madliena Village’s competitiveness?
“This is a number one location in Malta, with unique views,” Cross explained. “Remember that not everyone wants to be living on the seafront, where at night all you can see is darkness. The setting at Madliena gives you the feeling of peace and quiet. Portomaso - our nearest competitor, does not give the same feeling. People here will either like it or loathe it. We play on the feeling of remoteness, because the view allows it – and yet nightlife is only a stone’s throw away. I think we are in a more competitive position once we are not bang on in the middle of nightlife.”
The marketing strategy adopted by Madliena Village is also quite innovative.
“We only market through agents in Malta,” he said. “Granting sole agencies is also a very dangerous system to use in Malta so we don’t do that. We appreciate the fact that agents here are the ones to hold the clients, so we never work directly. MIDI tried setting up a sales team but I don’t see how we can work with a similar system. I don’t believe there is another way we can go around this.”
Clearly, the ‘boom and bust’ factor with luxury apartments in Malta is a possibility that many are reckoning. Due to over-supply, a number of estate agents are investing in overseas marketing to source new clients, thus increasing the prospective client-base. Irrespective of whether or not he owns offices overseas, Cross still feels he should delegate the task of offshore marketing to local estate agencies.
“Frank Salt, to mention one, is extremely active when it comes to attracting foreign clients. In fact, we never publicise Madliena Village without mentioning Frank Salt.”
Madliena Village will also have property available to let, but even here, with a difference.
“We have included a new scheme whereby investors are promised a guaranteed five percent return over five years if they leave the property in our hands to rent out. The good thing about this is that they get their return irrespective of whether or not we find a tenant. I think that this system makes sense mostly because people who invest in our properties know that once the two new blocks are completely finished – and that is in five years’ time, their apartment will increase in value. So if they purchase their property now and they rent it out for five years with a guaranteed return, they know that by the time the agreement expires, they would be able to make use of their investment as they wish, with some interesting returns.
“Rental here is easy,” he added, “Some people here run offices from their apartments, typically with markets like gambling.”
On second thoughts, he said “Rental may prove to be a difficult market as it is not always easy to see a good return. We’re looking at 3.5 percent return on investment maximum, and that’s if you’re doing well.”
Cross suggests that demand for rental may improve if Malta levers the Acquisition of Immovable Property (AIP) permit, which grants permission to non-residents to purchase property in Malta subject to certain conditions. Because Madliena Village was granted a Special Designated Area permit, their clients need not apply for an AIP.
“There is no realistic requirement for the AIP anymore, now that Malta is in the EU. The system around acquisition of property is somehow luring people away. The real potential of the rental market in Malta is at upmarket level. But if the AIP is levered, foreigners are more likely to invest in Malta and in turn rent out until they are of retirement age, which would then be the ideal time for them to move permanently into the property.
“By no means am I implying that getting an AIP in Malta is difficult, but it’s definitely a hindrance – and that’s for Europeans. If you’re Russian, then it’s absolute grief. Malta is not doing itself a favour in this respect. If you look externally, like in Cyprus, you can go and buy anything, anytime.”
Cross guesses that although demand for rental increases if the AIP is removed, “the 3.5 percent average return on investment wouldn’t be expected to move.”
It is known that investors coming in to Malta often receive state aid of some sort.
“We get zero,” Cross said, smiling. “It cost me a fortune to get the SDA status. We had to pay the government a lot of money for it.”
Asked to elaborate, he said : “They’re normally very reluctant to issue SDA permits because you would need to satisfy a lot of criteria. We also had to invest internally in order to get the building up to standard. You will only be granted an SDA if you are proposing a very high-class development of a certain size. Such standards are set because the government would want to ensure that the project being applied for will considerably improve the local economy.”
In an interview granted to this newspaper last year, Cross had mentioned that the Swieqi Local Council was not being supportive. Since then, if not improved, one could say that the situation has been clarified.
“Just before elections someone resurfaced the road, and I think the Swieqi local council was responsible for that. I’m very grateful, seeing that the old road was an absolute disaster.”
Cross went on to mention that when he had met the Local Council “they were very welcoming. However, as much as they tried to be very helpful, I don’t think they had the necessary budgets to be of assistance. I think there should be a reform in financing and budgeting in order to seriously address what the Local Council can do and what it can’t.”

16 April 2008

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