[WATCH] Malta property market waning, construction industry told

The property market has slowed down, according to a KPMG report that warned shoddy works risked giving Malta a reputation as a destination for working-class migrants.

The report noted that in the high-end property market, the quality of construction and finishing standards often failed to meet the expectations of high net worth individuals.

High-end developments were not performing as well as expected, the report says.

The Construction Industry and Property Market Report was commissioned by the Malta Developers Association and published during a seminar at The Excelsior Hotel in Floriana on Wednesday.

But the slowdown in the property market did not seem to worry operators, with several clarifying this was simply the industry returning to normal levels of demand after a period of stronger-than-usual performance.

Rents under €1,000 per month in short supply

KPMG found that rental properties priced at under €1,000 a month are in short supply and properties at under €600 a month are very limited.

“This has led to an increase in property sharing and has also driven some operators to provide lodging for their foreign employees at discounted prices or at no cost,” the report reads.

Operators who were consulted were of the opinion that there is an excess supply of properties in the mid-range, typically priced between €1,000 and €2,000 a month.

“One suggested reason was that many properties were priced at approximately €1,300 per month to meet the requirements of the Individual Investors Program,” the report says, adding that high-end developments were not performing as well as expected.

“From a demand perspective, higher rents feeding into higher-wage pressures on employers negatively impact Malta’s attractiveness to foreign investors and workers.”

According to a 2016 Central Bank of Malta assessment on the Maltese housing market, higher market rental rates only affect approximately 2% of the Maltese population. However, if property prices continued to rise at levels outpacing increases in income, some segments of society could be priced out of the market.

Some operators told KPMG that the construction and finishing standards applied to the upper end of local properties often fail to meet the expectations of high net worth individuals.

Some claimed that Malta is quickly building a reputation as a destination for working-class migrants and tourists as a result of local tendencies to accept compromised quality as a means of cutting costs.

Banks have played a role in stultifying the housing market

Industry operators said that local banks too have played a role in stultifying the potential of the housing market since some, they claim, were downright difficult to access.

“Industry operators criticised the local banking sector for the bureaucracy and challenges being experienced by non-EU residents when carrying out banking in Malta. Views expressed by the major banks acknowledged that foreign nationals may sometimes be subject to due diligence checks that take longer to be processed,” the report reads.

The report cites other potential reasons for the slowdown, notably the presence of rogue developers and lack of enforcement, with construction sites often experiencing fatal incidents, and the risk of a housing bubble when house prices are no longer necessarily reflecting economic fundamentals.

PM warns against greed

In his keynote address, Prime Minister Joseph Muscat said there were three firewalls that guaranteed that the construction industry remained sustainable.

“The first guarantee is the gut feeling of the developer where seasoned businessmen always know the demand and what will work and what won’t. The second firewall is banks — banks would not hand out facilities for a project that they are not convinced of,” he insisted.

The third firewall is the government policies and decisions where the government can stall everything if it sees that this is required.

“This year alone, we stopped the construction industry, a sign of credibility, and the Malta Developers Association and Chamber of Commerce agreed with such a decision,” Muscat said.

He was referring to a week-long moratorium on excavation and demolition on construction sites after two accidents which saw private properties in Pietà and Mellieħa collapse.