One of the most amazing headlines this week was in The Malta Independent on Thursday.
On page one, according to the calculation made by Professor Joseph Falzon, there is almost Lm25 billion worth of property in Malta. (I am assuming he means only privately owned because we really have no idea how much government and Church-owned – or transferred to government – property we have is worth, because a flat on a council estate might be easy enough to calculate, but what is for example the Auberge de Castille or the Curia worth, a nuns’ convent or a palazzo in Valletta housing a government department, or all the previously Church owned and tenanted property?)
On page two, the equally amazing headline that the number of loans outstanding on this Lm25 billion is, in a way, only a paltry Lm800 million. But this Lm800 million has obviously exploded in line with the value of property. This report by Michael Carabott tells us that in 1980 the amount owned on outstanding home loans was negligible, by 1994 it was Lm100 million, by 2001, Lm250 million and is now around Lm800 million. I am not sure whether Prof. Falzon worked it out, as the report did not show what property was actually worth in the days when a stroke of a minister’s pen could take away for ever all your land and/or property nor the suffering of those who sold cheaply because they were scared it could be taken over at any moment There are very many people who lost their land and suffered just as great an injustice as modern landlords do today as they cannot give their own properties to their children (not even when the original tenant passes away) because this dreadful right of inheritance persists in the old pre 1995 rents.
Further debate during this seminar entitled, “Real Estate, Opportunities and challenges for the future” really seemed to be about how to sell the glut of properties that are being built. The only real option seemed to be about attracting more foreigners to invest, which I found a little surprising since it is the Maltese who have made, and will continue to make the Maltese property market what it really is. It is therefore disappointing to see no creativity along the lines of how these properties can be made affordable to all those who still want to make home ownership their preferred tenure, possibilities like shared ownership and equity sharing which are not only the domain of governments or government provision.
Clearly the crisis in affordability many first time buyers are facing now is also partly due to the fact that the banks hid this affordability gap when they started offering 40-year instead of 25-year loans. The real cost of property was in a sense removed from first time buyers’ eyes because the monthly outgoing was the same as for a property worth half to two thirds of the price a few years earlier. But, unless banks go down the 60-year or permanent home loan route like in say Switzerland, the cost of a loan cannot be hidden anymore. In a sense the chickens are coming home to roost, most worryingly of all at a time when we are about to convert to the euro and where prices will rise, (even if interest rates may drop a little) whatever the campaigns, whatever the PR.
Once we change currency the perception is that prices will go up, whether it is because of the euro or not. Every time we go into a shop now and see our favourite eye make-up remover going up by 20 per cent we groan and believe it is inflation even though government statistics show otherwise. When the euro comes in, every time any product we buy is more expensive (which happens naturally from time to time), we will blame it on the euro whether the euro is to blame or not, a reality all political strategists in this country should accept. Furthermore, house price rises will stretch already stretched buyers into a discomfort zone which may eventually encourage a few more to rent, or more likely to pile even more pressure on the government to help. Attracting a few more foreigners will simply not be enough to keep our market healthy, nor, more importantly, enough to encourage and maximise the number of first time buyers into the market.
Buyers of course have to be a little less ambitious. They have to compromise on size and locality, but the affordability gap is still quite high and cannot shrink with current salary levels, at least not in the mass market because various niche markets like homes for rent or luxury homes can and do operate in their own vacuum.
Those who bought pre 1980 are guffawing with property wealth. Those who bought pre 1995 are laughing. Those who bought pre 2000 are smiling. Those who have bought 2006 onwards are still managing but it’s more of a grin and bear it look. There is only so much we can eke out of having our own home after all. In Malta today you are what you can eke out of your home. Trouble is an increasing number cannot eke out anything at all but debt, otherwise called a loan.
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