The Diocesan Commission for Justice and Peace is very concerned about the endemic and uncontrollable speculative practices in the property market and called upon all the political and social players to adopt this issue as a top priority for immediate concerted action, if they truly believe in social inclusion and a sustainable standard of living based upon the foundation of the family as the main contributor to a healthy society.

The commission emphasised that a truly anti-poverty and sustainable standard of living approach cannot exclude housing from the collective aspects of the common good, which also includes the right to work, food, education and health.

In a reflection paper on social justice issues, housing and related matters, signed by commission chairperson Godfrey Leone Ganado, the commission referred to the publication of the “State of the Construction Industry Report 2005” by the Building Industry Consultative Council (BICC).

According to this report, the average contract prices for apartments during 2005 increased by 20.34 per cent following another average increase in 2004 of 16.6 per cent over 2003. This upward trend is also reflected in the first quarter of this year during which period the cost is estimated to have, increased by another 11.5 per cent.

This means that the average compounded cost of apartments since January 2004 is estimated to have increased by 56.5 per cent.

The average contract prices for maisonettes during 2005, again according to this report, increased by 15.32 per cent when compared to prices in 2004. On average, prices for 2004 are estimated to have been 17.49 per cent higher than prices in 2003. It is also estimated that on average, contract prices in the first quarter of 2006 had increased by 9.67 per cent when compared to the same period for 2005.

This means that the compounded cost of maisonettes since January 2004 increased by 48.6 per cent.

The data in the report is based on the National Statistics Office (NSO) news releases on property prices, the median property prices as reported by the Central Bank of Malta (CBM) in their quarterly reviews and, the data provided by one of the leading estate agents regarding property prices broken down by high level categories and by number of bedrooms.

The above statistics have already been debated in public and the press, and it is very clear that there is general disagreement on the real inflation rate of property, despite the official statistics, the commission said.

However, it is generally accepted by all, that prices of apartments and maisonettes have increased by a rate which may vary between five per cent and 30 per cent depending on the type of the property, the quality of the property, the number of bedrooms and the location.

Cost of property and

underlying inflationary causes

It is also clear from statistics, property adverts and property brochures prepared by estate agents, that the average cost of a three-bedroomed apartment and a three-bedroomed maisonette in 2005, were approximately Lm55,000 and Lm68,000 respectively.

In this respect, it is pertinent to highlight, and this is evident by on-site visits, that the size of apartments and maisonettes during these last three years has generally shown a trend towards diminishing area coverage, irrespective of being classified as three-bedroomed. This, if quantified, points towards a much higher relative increase in the cost of property.

The commission is also very concerned about the current practice whereby apart from the principal contracted estate agent, a number of other individuals/consortia, also involve themselves through the right of substitution, as middlemen in the chain of property deals.

This practice, sometimes leads to a situation where the property being sold changes hands for a number of times at the purchase/ demolition/development stages, before it gets to the ultimate owner of the finished property. This speculative practice is also contributing to an artificial inflation in the cost of property which is difficult to measure.

Another aspect leading to an inflationary cost, is the fact that property – mainly terraced houses and maisonettes – are being knocked down before the lapse of 10 years after being built. This is leading to a wastage of the cost of the materials used in the building and the finishing of the property. This is also a wastage of resources and an unnecessary strain on Malta’s economy, increasing the import/export imbalance without creating any added value.

The home loan option and

impact on income

The commission is concerned that the majority of young couples who fall within the middle income group, have to resort to home loans equivalent to 80 per cent of the cost of the property stated above, which equates to Lm40,000 for an apartment and Lm55,000 for a maisonette.

The repayment of these loans over an average period of 35 years equates to an annual payment of Lm2,352 and Lm3,228. Furthermore, one must add the annual costs of life insurance and property insurance which may add up to a total of another Lm150 annually.

The inflation rate of property prices, even if based on the minimum of seven per cent, is surely much in excess of the average annual increase in wages and salaries. Therefore young couples who enter the property market as first time purchasers have to eat further into their disposable income to finance their mortgage.

It may be appropriate to take an example of a couple opting for a joint tax computation and earning Lm10,000 between them. The tax charge on this income would amount to Lm1,025 and the NI contributions to Lm1,000 (10 per cent income) giving a net disposable income of Lm7,975.

Assuming that the couple has an annual repayment of Lm2,352 and Lm3,228 on a 35-year loan of Lm40,000 and Lm55,000 respectively plus Lm150 for the related insurance premiums, this would leave them with Lm5,473 and Lm4,597 for their annual living expenses, or better still Lm456 and Lm383 monthly. This situation begs the question: is housing on the open market accessible to a couple with an annual income of Lm10,000?

The rental option

An option to accessibility to housing would, in ideal circumstances, be the rental of property. However, the inflationary cost of property is no longer conducive to young couples taking up this option, the commission said.

In fact, if one had to take a return of 3.5 per cent on the costs of the apartment (Lm55,000) and maisonette (Lm68,000) referred to above, the rental value would equate to Lm1,925 and Lm2,380 per annum – amounts which are surely beyond the means of middle income earners. This is one other reason why young couples prefer to take up the burden of the purchase option.

In the latter option, a repayment of Lm1,925 and Lm2,380 per annum would give the couples access to a home loan of Lm33,000 and Lm40,000 at an interest rate of 4.75 per cent per annum for a period of 35 years – definitely a better option to buy than to rent.

This shows very clearly the importance and urgency for a thorough revision in the current rent laws, with the intention of encouraging the release of unutilised stock of vacant houses for rental purposes, the commission added.

It must be emphasised that the revision of the rent laws, just presented to Parliament, demands the responsibility of a unanimous agreement by both political parties and the social partners in the interest of social justice with deserving tenants, and economic equity with the owners of these vacant houses who have been deprived of their right to a fair return for far too long.

Of course, the revision of the rent laws on its own is not going to solve the problem entirely and this therefore calls for the introduction of measures to contain speculation and measures to widen the beneficiaries of schemes implemented by the Housing Authority.

Increase in the Central

Intervention Rate

Recently the Central Bank of Malta, which is responsible for monetary policy, increased the base rate of interest by 0.25 per cent (25 basis points).

While it is the duty of the Central Bank of Malta to intervene on monetary policy at a macro-economic level, the commission said it must, in the interest of social justice, highlight the implications of such an increase on married couples and young couples who are already struggling to cope with loan payments on their residential property.

In this respect, one must state that additional interest cost as a result of the 0.25 per cent increase would equate to an average annual interest payment of Lm100 on a loan of Lm40,000 and Lm137 on a loan of Lm55,000.

This additional cost, while tightening further the financial constraints of young couples, has also to be considered in relation to the funds that young families will soon have to allocate to provide for future second pillar pensions, without which their standard of living on retirement will not be sustainable.

Some reflections from

a social justice aspect

Property and housing – The Compedium of the Social Doctrine of the Church in Chapter II under the title of “The principle of the common good” states that “the principle of the common good, to which every aspect of social life must be related if it is to attain its fullest meaning, stems from the dignity, unity and equality of all people” (No 164). “The demands of the common good concern the provision of essential services to all, some of which are at the same time human rights: housing, among others.” (No 166).

The proposed charter of the European Union “Housing and the European Cohesion Policy” states that “any person living on the territory of the European Union has the right to access a healthy, decent and affordable accommodation and to benefit from an aid for housing in order to guarantee a dignified life in accordance with the constitutional tradition of the member States” (Article 1.2). In addition, “speculative practices in the housing market must be struggled in consideration of their negative impact on the capital markets stability” (Article 3.3).

The commission is therefore very concerned about the endemic and uncontrollable speculative practices in the property market and called upon all the political and social players to adopt this issue as a top priority.

The commission emphasised that a truly anti-poverty and sustainable standard of living approach cannot exclude housing from the collective aspects of the common good, which also includes the right to work, food, education and health.

The main objectives of the Peace and Justice Commission is that of fostering awareness of the Social Doctrine of the Church by studying and relating the implications of economic, social and legislative measures to social justice in the interest of the dignity of the human being and the common good.

The commission augurs that its comments and reflections will be received in the spirit of promoting and fostering social justice on a collective basis, and not as a tool to promote self-interest and partisan politics.