Property sector: Selling on plan becoming difficult due to rising costs, letting market doing well
Selling properties on plan is becoming more difficult, while the letting market is going strong, The Malta Independent on Sunday is informed.
In March, this newsroom reported on how the war in Ukraine, as well as Covid-19, had driven up construction costs, due to an increase in materials and importation costs. Jesmond Chetcuti, president of the Malta Chamber of Construction Management, has told this newspaper that construction material costs are still rising today, mainly due to the war.
This newsroom spoke to several leaders in the real estate sector to see what effects, if any, the situation is having on the property market itself.
Founder and CEO of Alliance, Michael Bonello, who is also the head of the Malta Developers’ Association Estate Agents Section, explained that developers will not be able to just increase prices.
Bonello said that costs are increasing heavily, “but the issue here is that if you are competing with existing properties, which have been on the market, you cannot just put up prices because your costs have risen”.
“Let’s say there is a block of five apartments in Swieqi and the selling price is €350,000. If you are building next door to them and your costs have risen, you cannot just put your apartments on the market for €375,000. You would first need to wait for the old properties to sell.”
Asked if he foresees a situation where the impact will result in higher property prices in the coming months or if he believes the market would stabilise itself out because developers would be unable to increase prices due to existing stock, he personally does not believe the market can take an increase in prices at the moment.
He said that prices are stabilising and changes in tax, which the Malta Developers Association had come up with, helped throughout the Covid situation. “Those were very advantageous and, really and truly, we had more sales during the Covid period than in certain years.” But, he said, this will not be a reason to increase property prices. He believes that when buying a site to develop, people are going to have to try and buy the sites cheaper, taking into consideration the increase in costs to develop.
Asked about properties selling on plan, he said that there has been a large decrease in such sales. While before 75% of a block would sell on plan, today it might be 20-25%, he said as an example. “It all depends on price. But you aren’t going to get good deals if construction prices and everything has inflated.”
“What I feel there is interest in at the moment is the buy-to-let market. When looking at the letting market, there is a strong increase in demand for letting, so there are many requests and we are getting stuck in terms of supply. We are trying to motivate people to invest in renting properties again.”
But, he said, it remains to be seen whether this is a situation being brought about simply because summer is coming. “Foreign workers are returning to the country – the catering, hotels and sales sectors are expecting a boom in the summer months. But we have to ensure that this isn’t just a boom for the summer months and then when winter arrives these people end up unemployed.”
He also said that the Airbnb market has become strong again.
Steve Mercieca, CEO of Zanzi Homes and Quicklets, said that first-time buyers are the ones who are going to be impacted the most by the increase in property prices as a result of the war in Ukraine.
It will be hard for such buyers as the price of property continues to rise, he explained.
As previously reported, the war resulted in an increase in costs for contractors and builders, as the cost to import certain materials has risen. Mercieca predicts that the value of properties will continue to rise, and not decrease as a result.
The rental market is still strong in Malta, he added, as is the short let market.
Mercieca explained that a lot of properties were sold on plan and so developers need to build them according to that price, regardless of the increase in material costs that have been witnessed. Developers, he said, generally make a 20% profit on properties they build and sell, so if the cost of building these properties now rises by 40%, they could face issues, he said. Many of the larger developers however would not be affected as they would have a stock of materials stored away, he added. The timing of all this is really bad as there was a shift starting to happen and many developers started to build with much better quality, he said. “Let’s hope the increase in raw materials doesn’t have a U-turn effect on this.”
“There is still an appetite to build. Smaller developers might be impacted more than the larger ones.” There is also a good stock of properties on the island, he said.
As for Russian people buying property in Malta, Mercieca has not witnessed any downward trend. He said that many of the Russians living and buying property in Malta have ties to Europe and are against the war. What he has witnessed is an increase in anti-Russian sentiment.
Remax Malta chairman Kevin Buttigieg said that while the Maltese property market is still going strong, the increase in costs is making people quite hesitant to develop as they do not know what their final costs will be.
“In the past you could calculate your profit quite easily, then all of a sudden things changed and you don’t know what’s going to happen from one week to the next.”
He said that the market is still moving well and from a Remax point of view their sales in the first quarter of this year were around 9% higher than the same period last year and “last year was a good year”.
Buttigieg believes that in the next six to 12 months the war will affect the market, because of costs. “It will definitely affect the bottom line of any development that was purchased pre-war that needs to continue being built. Obviously if costs rose and you have already sold on plan, you don’t have the option to change the price. So yes, there will be some effects.”
“If people who buy sites to develop and build apartments are not cautious, they could find themselves in some trouble, but if they are cautious they would need to work out a safe way of dealing with the project. It definitely changed the mindset of a developer as well as the pricing mindset. We are predicting that prices will go up because they can’t go down.”
This isn’t a situation that Malta alone is facing, he said. “We just had a European Remax meeting and every country in Europe saw prices rise last year by a minimum of 7%.”
As for the sale of properties on plan, he said that this was affected before the war.
“Cowboy developers that were selling on plan because they had to, as otherwise they couldn’t afford to go through with their project, might be wiped out of the equation. So most of the developers who will develop in the near future will probably be solidly financed, would probably not sell on plan, but sell when finished or wait until the permits are in hand.”
Douglas Salt, director of Frank Salt, said that property prices in Malta have remained stable and rental has returned, more or less, to normal.
“I imagine there will be less release on plan without knowing the end price. So either people will delay construction or wait until the property is ready before releasing them.”
He hasn’t noticed fewer properties entering the market. “But we have had a few people who have withdrawn blocks on plan. The market definitely cannot take a 35-40% increase to match the cost of construction,” Salt said.
Asked whether he has noted any other impacts, he said that a few clients are finding it difficult to move their money, but other than that the market is pretty buoyant.
Asked if he predicts a more serious impact on the market in the future, he said “if people put up prices expecting them to be met, then we will have a serious problem as I think our market is already at saturation point price wise. But it’s still early days; at the moment they are still developing what they have sold”.