Last week, two specific announcements, one from the Finance Ministry and the other from the Investments and IT Ministry, contained an overdose of political surrealism and spin. I keep asking myself, after reading such press releases, whether it is inevitable that those in positions of power always reach the conclusion that the population must be completely daft. Alternatively, they must believe that their PR machine is so damn good that they are able to spin, way beyond credulity, even those realities and situations that are blindingly obvious even to the least educated of us. It is high time that government ministers genuinely start respecting people’s intelligence – at least they should keep the raw propaganda exclusive to NET TV.
The first pronouncement came Saturday last from the Finance Ministry. Parliamentary Secretary Tonio Fenech declared, following a report published by the Malta Financial Services Authority, that the local banks were “not to blame” for the escalation in property prices. As some of you may remember, some six months ago Parliamentary Secretary Tonio Fenech attempted to shift the heat of a ballooning property market completely off his government and onto the local banks – how convenient! He commissioned a study (favourite PN tactic) to ask whether the lending practices of the local banks had contributed towards the phenomenal increase in the price of real estate over the last two years. It was a typical Nationalist ploy; first call a press conference to announce the problem without taking any political responsibility whatsoever for it; second take the heat off the government by calling in the experts (in this case the Malta Financial Services Authority); third – after enough time has lapsed, have the experts reach their own conclusion so the government doesn’t have to point fingers itself.
The question asked by Tonio Fenech was whether low interest rates (that are anyhow dictated by the Central Bank and not the commercial banks) and 40-year long lending periods have been conducive to the escalation in property prices. Of course they are! For an aspiring Finance Minister this should be immediately obvious. For those of you, for whom this is not, allow me to explain. A six per cent loan is naturally cheaper than an eight per cent loan and will result in a lower monthly repayment. Similarly, a 40-year loan results in a lower monthly repayment than a 30-year loan. Lower interest rates and longer lending periods make borrowing “cheaper” in terms of monthly repayments, thus making property seem more affordable. This results in sellers demanding more for their properties because they know that the monthly repayment has become more affordable.
Tonio Fenech was not looking for reasons however. He was seeking to blame somebody for the situation. Anybody, that is, apart from his government. Attempting to blame the banks was a short-sighted political manoeuvre, which means that the gentleman does not understand (or pretends not to understand) the dynamics of the property market. Of course they are not to blame, dear Tonio. Blame for the ballooning of property prices cannot and should not be assigned to just one factor. Did you really think that the MFSA report would give you a political scapegoat?
The escalation in property prices is due to a range of factors, one of which, beyond a shadow of any doubt, is the bank’s 40-year lending policy. However there are many more factors. I can mention others, like the “repatriation” schemes (versions 1, 2 and 3), which boosted local liquidity that was channelled, in significant part, to the property market. I can also refer to the absence of a developed rental market, in part due to the existence of the pre-1995 rent laws that continue to inject fear into many who would otherwise seriously consider renting their properties. I could also mention as a factor the existence of over 30,000 vacant residential properties for which the government has no policy whatsoever, not even an advantageous tax system to encourage rent. If Tonio Fenech is looking for reasons these are, at least in my opinion, just some. However, if he is seeking to blame somebody, that is another issue.
Blame, in this regard, is a political connotation, not a commercial one. Blame rests with a government that chooses to do absolutely nothing about any of the factors that have contributed to the unsustainable increase in property prices. I guess Tonio Fenech may have to commission another study now, ha? How about one on rent reform? Oh I forgot – Minister Cristina has done that. Has she not?
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The other Minister who, very cheekily, tried to pull our leg recently was Austin Gatt. The man is currently on the highest of highs. His recently concluded agreement to kick-start the SmartCity project is most certainly the finest feather in his cap. It has been the best bit of economic news this country has received ever since the PN re-election in 1998. Well done, really! However, the gentleman could not get off the high horse, from which he assumes that the rest of us are all stupid. Less that a week later he announced that the company to whom the government will most probably sell its 60 per cent shareholding in Maltacom will be Tecom, the same one that will build and operate for SmartCity. Before anybody had the time to say “Oh what a coincidence!” Minister Gatt declared that the two deals were not related. Sure, Minister, sure!
Edward P. Fenech is spokesperson on Finance, the Economy and Tourism of Alternattiva Demokratika – The Green Party