News | Sunday, 22 March 2009

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Slowdown takes property market into ‘serious trouble’

Matthew Vella
Recession has arrived, and with it a gloomy picture of one of Malta’s thriving markets – property. According to globalpropertyguide.com, Malta is in “serious trouble” as the island joins the rest of Europe in a downturn in house prices that now appears to be accelerating.
Worse off are countries with house price falls of over 10% – from Latvia (37%), down to Ukraine (12%) (figures adjusted for inflation).
But globalpropertyguide.com says that in the last three months of 2008, the momentum of falling prices “significantly accelerated”, which means the situation is deteriorating.
Europe, it says, has “major problems”. Malta is among those countries in serious trouble with a 9% price fall, and is joined in this category by Iceland (16%), Ireland (12%), Ukraine (12%), Portugal (8%), France (8%) Finland (7%), Norway (6%) and Spain (6%).
Globalpropertyguide’s verdict is that after a crash housing markets take years to reach full recovery and that no real recovery is likely in the global housing markets this year. With the IMF predicting that the world economy will grow by 0.5% in 2009 (the lowest level in 60 years), and banks not becoming more willing to lend, the road ahead is tough.

Slowdown
Back in 2007, banks were already foreseeing a plateau in house prices after nearly four years of sharp rises in construction activity and prices.
But in the first quarters of 2008, the house price index fell by 0.8% – and when adjusted for inflation, by almost 5%. It was a nasty hit, considering that in 2004 the house price index had appreciated by 17% in real terms.
Things started cooling down in 2005 (6.6% real price rise) but by 2007 prices had rose by just 0.4%. The boom had been underpinned by low interest rates and the tax amnesty on repatriation of money held in foreign accounts. Residential mortgage debt rose from 19.6% of GDP in 2002, to 34.7% in 2006; repatriated monies created an upward pressure on house prices.
MEPA also paved the way for massive luxury-apartment projects, by relaxing height restrictions in the case of MIDI plc’s Tigné Point and Gap Holdings’s Fort Cambridge. Permits for new dwellings rose from 1,321 in 2003, to 2,636 in 2007 for over 10,000 apartments, 969 maisonettes, 257 terraced houses, and 138 other types of dwellings. It is clear that supply has outstripped demand, with 21% of all properties in Malta being empty.
And only this week, the full development permit of the Metropolis Plaza was approved for three high-rise buildings of 13, 27, and 33 floors, including 4,000 square metres of office space.
This week newspapers announced the economy went into a recession during the second half of 2008. Figures released by the National Statistics Office last Wednesday confirmed that last year the economy contracted in real terms by 0.3% in the third quarter, and 1% in the fourth quarter.
Eurostat defines a recession as two successive negative quarter-on-quarter changes in constant-price GDP.

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