Have we lost our bearings in a run away construction plot?

In the past decade, we witnessed how higher construction can strain the local ecosystems by limiting car and pedestrian accessibility, encroaching on parking areas, and increasing air and noise pollution. All these factors are detrimental to the health and well-being of ordinary people. Is it a sign of affluence or an unbridled race to maximize profits at the cost of wellbeing of inhabitants. Until real urban planning reforms are enforced, residents will continue to bear the brunt of reckless development, trapped in a never-ending cycle of noise, dust, and indifference.

Again, there has been a commensurate increase of accidents (some are fatal eg Jean Paul Sofia) on building sites. A tightening of regulatory standards in the construction sector in the wake of the building collapse fatalities has introduced new rules, like licensing for contractors and builders. This seems like a knee jerk reaction. On its own this reform confirms how the enforcement of health and safety regulations is often a low priority for developers and enforcement authorities. When one considers the physical toll of repetitive tasks in moving materials and building blocks of soul-less concrete flats, one understands that accidents occur.

Workers on site face unrelenting pressure to meet deadlines, and it is no wonder construction sites, especially those in built-up areas, transform into zones of potential disaster. Is this an endless party or do the signs of property saturation sink in gently this year. Not so, tell us the Malta Development Association, a construction lobby. Recently, it announced how demand for property was “constantly increasing”. It blamed excessive bureaucracy and shortage of workers yet it projects a sustainable future. In fact, an MDA report says construction firms are planning investments to diversify their revenue streams amid the market challenges.

In their opinion, construction was and remains one of the major driving forces behind the economy. It also remarks that the construction lobby remains a key source from where the government gets its money to sustain the health, education and welfare sectors as well as the infrastructure. The property market seems to be resilient, and this is manifested by the latest findings of NSO.

Property sales were practically unchanged in February compared to the same month last year, with the number of final deeds of sale relating to residential property amounted to 1,021, a minor increase when compared to previous year. In fact, during February, 1,253 promise of sale agreements for residential property were registered, an increase of 87 over the same period last year. Consistent with previous years, the highest numbers of final deeds of sale were recorded in the Northern Harbour and the Northern districts.

Most of all, this is a leading indicator of the country’s social and economic landscape. The construction and real estate sectors (as of March 2024) account for 37,424 jobs, directly and indirectly. Moreover, in the first half of 2024, the construction industry generated €417.8 million and, in the same period, the real estate sector generated €496.4 million. Quoting from a KPMG report, this notes that there is a high demand in the local market for apartments; a property segment which has experienced an increase in prices of approximately 4.7%, with the overall average price at €374,070.

One observes that while prices for apartments are on the increase, property sizes are becoming smaller. More concerning is the fact that, based on such commercial rates for apartments, a young couple in their late 20s, both earning a minimum wage, will face difficulties in acquiring a property and are likely to encounter limitations in terms of location and property size.

The same applies to a single professional individual in their early 30s earning a gross annual income of €37,345, or a single individual in their 20s earning €22,407. This is concerning, especially in view of recent figures that one in six workers in Malta earns less than €1,000 a month, and that more than 2,300 full-time workers earn the minimum wage of just €835 per month. Quoting NSO, one reads how the average monthly basic salary was circa €2,000 during the last quarter of 2024. It shows the highest salaries are recorded in the financial and insurance sectors with average salaries ranged from €1,239 for those in elementary occupations to €3,170 for those in managerial roles.

One expects a couple each earning €4,000 net monthly having difficulties to buy and furnish their first family home at these property prices. More disconcerting is when one keeps in mind that the median national salary for the first financial quarter of 2023 stood at €1,582 per month, translating to around €19,000 per year. This alarming reality for low-income earners is not limited to access to property but also to the residential rental market, with average asking rental rates for apartments experiencing a general rise in all regions in the past year. The largest jump in rents was observed in the North-West as rentals increased by 17.3% to reach an average of €1,194, from €1,018 in 2023. The Central, Southern and North Harbour regions also observed substantial increases of 15.3%, 15.9% and 10.5% respectively.

The largest average rates were observed in the North Harbour region which reached €1,765. More concerning when one also keeps in mind that 86,000 people were at risk of poverty, translating to almost 17% of Malta’s population. While the Maltese property market has shown strong growth, subtle indicators could suggest it is experiencing overtrading. Factors such as rising prices, affordability issues, and potential economic changes could lead to a correction in the market. However, predicting the timing and extent of such correction is inherently uncertain and depends on a complex interplay of local and global economic conditions.

If a significant portion of property purchases is driven by speculative investment rather than genuine demand for housing, it could indicate an overtraded market. Speculative bubbles can lead to sharp corrections when investor sentiment shifts. Speculators disagree saying any future price correction will be mild given the shortage of building sites. One must factor in global economic conditions such as tariffs trade wars with US that may trigger a recession and rekindle high inflation pressures in Europe. Economic conditions, such as rising interest rates, inflation, or economic downturns, can impact the property market. If borrowing costs increase due to inflation or economic growth slows, it may lead to reduced demand for properties and trigger a correction. Let us act contrite and reform the construction and property development sectors in time before more fatal accidents on property sites occur.