The Chamber of Small Businesses (GRTU) yesterday delivered a stark warning to government concerning recent fluctuations in the property market.
With prices steadily decreasing and property sales becoming increasingly difficult, the GRTU stressed that government ought to take measures in its next budget to prevent a market collapse.
The GRTU statement also made the following, somewhat oblique claim: “Bad planning had led to an oversupply of ordinary apartments, even in prestigious areas.”
Its conclusion is that government should reduce the current withholding tax rate from 35% to 12%.
Whether or not this is the ideal solution is open to debate; however, few would deny that the GRTU is justified in its immediate concerns.
In a country where no fewer than 80% of the population own their homes, a crash of the proportions envisaged by the GRTU would indeed be devastating to the economy, and especially to individual home owners.
However, one can only wonder where the same GRTU was hiding when so many of the same “bad planning decisions” it now criticises were actually taken... often as not with the same GRTU’s wholehearted support.
A typical example occurred in 2006, when government ignored public opinion and steamed ahead with its remarkably short-sighted 2.3% extension to the development zones. On that occasion, Prime Minister Lawrence Gonzi’s justification was that the resulting oversupply of new properties would “push property prices down.”
Nor was the so-called “rationalisation exercise” the only example of “bad planning” that the GRTU appears to have only woken up to now. For decades, short-term measures aimed at protecting tenants from a wartime housing shortage in 1939 committed every successive Maltese government to a policy which effectively eliminated the rental market.
The longer the situation prevailed, the more difficult it became for any government to dismantle it.
Every 10 years or so, it was found necessary to make adjustments to the regime; but a wholesale reform was never attempted. The 2009 reform comes closest, but is too little too late to address the most dire of its consequences. (And paradoxically, its most vocal critic was none other than the GRTU’s Vince Farrugia.)
Because for so many years it was rendered worse than unprofitable for Maltese citizens to rent to other Maltese citizens, the baby boom demand for housing could only be met through the provision of government housing and private home ownership.
While providing cast iron security to tenants, the rent laws created an artificial scarcity in the property market, while denying it the damper of an effective rental market.
The very long duration of the “emergency regime” smothered the rental culture among potential tenants while the constant rise in property prices induced an urgency to buy before prices rose any further.
The introduction of mortgage lending to buyers further sustained the property market, allowing buyers to “afford” properties in a range far beyond their own resources investment. As property prices continued to rise and demand seemed to flag, the initial 15-year mortgage terms were extended to make repayments affordable again.
Meanwhile prices became stratospheric and mortgage terms in recent years reached the 40 year limit with 110% of the price loaned.
Ironically the application of Capital Gains did nothing to suppress speculation: sellers simply tacked on the tax they expected to pay to the selling price, producing a contrary effect.
Until the 2005 Census of Population and Housing was published in 2007, almost everybody seemed to believe that property prices are high because property was scarce. The revelation of the existence of 50,000 properties lying vacant, 60% of which in pristine condition, put paid to that belief.
A Central Bank of Malta study on the subject revealed that property had never been scarce and that at every census thousands of vacant properties had been documented.
Although the scarcity myth had been debunked, the government not only extended the development area all over the country in 2006, but in previous years had altered height limitation regulations all over the country – giving rise to a spate of demolitions in many areas of recent two-storey development as well as in the unprotected village cores.
The granting of development permits allowing the conversion of several large hotels into apartment blocks only added to this vast, well-documented glut.
In the last four years, tens of thousand more development permits have been issued regardless of the fact that it will never be possible to employ a significant fraction of the 50-80,000 vacant properties.
It seems therefore that we have followed the example of the Biblical ‘house built on sand’ – with one significant difference: for even though the consequences of successive governments’ policies have always been visible to those with eyes to see, we have nonetheless inexplicably insisted on raising more and more storeys on such on shaky foundations.
That the entire edifice now threatens to collapse should really come as no surprise to anyone. But it did, and this alone speaks volumes on our national lack of foresight.
Any comments?
If you wish your comments to be published in our Letters pages please click button below. Please write a contact number and a postal address where you may be contacted.
Download front page in pdf file format
All the interviews from Reporter on MaltaToday's YouTube channel.
