Investors offloading undeclared cash in luxury property as they re-evaluate project partnerships

Developers turn to luxury property on the market as they shy away from development partnerships that could prove to be a liability down the line


The recent high-profile arraignments and subsequent incarceration last month on money laundering, corruption and fraud charges charges have had a devastating effect on the property and construction industries.

Developers, contractors and investors, notoriously cash-rich, have resorted to purchasing high-value property in order to offload their cash reserves as they shy away from any major project partnerships.

Sources, who spoke to BusinessToday on condition of anonymity, said that untold millions of Euros are offloaded annually in this manner, as investors purchase luxury property with undeclared cash reserves.

“A property worth €1 million would be listed as having been sold to the investor for €500,000,” one source said. “The remaining €500,000 would change hands in cash and remain undeclared.”

And laundered.

And wheras these investors would usually invest heavily into construction and partnerships, the arrest of Keith Schembri, formerly chief of staff to then Prime Minister Joseph Muscat, and finacial services advisors Brian Tonna and Karl Cini - together with a number of the three’s closest business partners and colleagues  - has left many questioning the merit of getting involved with third parties.

BusinessToday has learned that property magnates and real estate developers are now very leery of putting their money into projects involving other investors - with the possibility down the line of seeing all their assets frozen or seized if the other investors are found to have been involved in anything illicit in their business dealings.

Staff in Schembri’s, Tonna’s and Cini’s business ventures, including accountants, financial officers and managers, were also charged with counts of money laundering and fraud. And when the Court ordered the freezing of all assets belonging to the three, hundreds of other individuals and companies who had previously had any sort of business dealings or connection with them - as well as their families and relatives - had their assets frozen as well.

Now, developers are worried that they too might find themselves in the same situation if any of the people they do business with is somehow discovered to be involved in any illegalities.

One contractor said that he had cancelled on put on hold 18 projects since the high-profile arrests, as he was rethinking those partnerships.

“Across those projects, I was in partnership with 24 other individuals or companies,” he said. “Now, like many others, I am re-evaluating whether it is worth to get involved with others, when it could come back to haunt me in the future.”

Property development is mostly a sure investment for seasoned developers, who throw milions into projects rather than parking their cash in low-yielding bank accounts or financial investments.

“The problem now is that many, like me, are taking a step back and taking a closer look at the people and businesses they deal with and have done so, in some cases, for years,” the contractor said.

Another developer said that he had been involved in a project in a Qormi with two other investors.

“We have already submitted our plans to the Planning Authority, but now one of the other investors wants to pull out,” he said. “He says it’s because he’s afraid to have his money tied up in a project with other people.”

This appears to be a common theme across the industry.

“Investors have become suspicious of people they do business with, even if they have known them for years,” another investor said. “My problem is that, unless I decide to go into some projects alone, I don’t know what I would do with my money. I need that money invested fast.”

But for many - smaller - developers and investors, going it alone is a daunting task of its own. Most usually enter into partnerships because of what others bring to the table, and remaining a level detached from actually running a project.

Another contractor said that he had 11 projects put on hold as investors got cold feet or sought an exit strategy.

“My largest project was a development in Sliema and now I am seeking legal advice as to what my options are contractually with regards to the defaulting investors,” he said.

“Most worrying is that these developments, and what is surely yet to come, will have a crippling effect on Maltese businesses and their hopes of investing, joing partnerships and enticing foreign businesses to join local endeavours,” he said.

The contractor said that the effects of  the revent developments on the industry would be felt for years.

“Those who can read between the lines know that this is not a good place for Malta to be,” he said.

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