Panel discussion: Finance

Description

In recent years, investing in property has become very popular. What is more, this kind of investment seems to be less risky than investing in shares or raw materials due to a slow but steady increase in property prices.

For many individuals, Real Estate represents not only a physical asset, but also a financial asset and a source of return and diversification. As a significant long-term asset, Real Estate represents a major financial investment.

With an ever-increasing amount of capital chasing a limited number of deals, we expect real assets to continue appreciating and outperforming in the coming decades.

When thinking of real estate investing, buying an investment property and renting it out might be the first option people think of — and while that is a viable option, it is just a drop in the ocean in terms of all the Real Estate investment choices at the disposal of both professional and retail investors.

Whether you have the time and money to spend on an investment property or not, there are a multitude of ways to get involved in real estate investing.

Objectives

• Discuss the different features for investors: value volatility, diversification, liquidity, and regulation
• Active vs Passive investments in property.
• To describe the recognition, measurement and disclosure of investment property under Maltese and international regulations
• Analyse the presentation of such information in financial statements of the companies listed on the Malta Stock Exchange

Speakers

• Douglas Salt – Director at Frank Salt 
• George Vella – Partner and Head Advisory at Grant Thorton 
• David Valenzia – Territory Senior Partner at PwC Malta
• Andrei Imbroll – President at VBL Group

Panel Insights

Background of property market

The Maltese have a relatively high home ownership rate (80%) when compared to other European countries. Investing in property is also popular, due in part to a lack of variety of other investment vehicles.

The three major sources of demand for property in Malta have come from foreigners living in the country, Maltese buying to let, and own use.

From 2017 to date, promises of sale have gone up from 13,000 preliminary agreements to last year’s record of more than 20,000. The 20% increase could be an element of forward buying caused by advantageous stamp duty reductions. The first four months of this year show approximately a 30% slowdown, but it remains to be seen if this reflects a compensation of the forward buying of last year, or a general downturn.

Increase in demand was mainly driven by the buy-to-let market. Advantageous rental returns were directed towards property investment.

One of the reasons why the property market has grown is because of advantageous conditions, such as low interest rates and an influx of non-Maltese looking for work in Malta.

Market intervention and regulations

Government interventions in the market, such as the reduction in stamp duty, have created artificial demand. This could glut the market if it does not stop soon.

Regulation when it comes to Urban Conservation Areas is overwhelmingly considered as a positive, as it helps buyers ensure that the characteristics of the area (such as green spaces) will not change substantially after a property is purchased.

The sector is closely monitoring the new set of demands that the recently formed Building and Construction authority will introduce, and how these will affect the market.

Foreigners buying property in market: still a niche

The issue of foreigners buying property of Malta is overblown; it barely represents between 7% to 9% of the whole market. Competition to attract foreign investors is high, as it pitches Malta with countries from all around the globe. The main reason for foreign investors buying property in Malta is for permanent residency purposes, or to use as tax-efficient base. Foreign investors are dissuaded by too many barriers for entry. Another factor that reduces the desirability of Malta as a recipient of foreign investment in real estate is that foreign investors tend to be more selective when it comes to quality. Their demands for optimal soundproofing, thermal insulation, cross ventilation, and finishes, are seldom met.

Recent developments and trends

A recent development in the market is that large hotel chains, such as Marriott, are moving towards Airbnb-like rental services, where they buy properties and rent them under their respective brands.

There is reason to believe that high-rise development will continue from Sliema all the way up to Madliena. This may bring volatility to the market.

Another notable trend is world-renowned architects putting their signature to projects in Malta.

The spectre of inflation

We are now entering a period of increasing inflation, which may put pressure on interest rates. In inflationary periods, people park money into what are considered safe havens. Property has been traditionally considered one of them. The sector has yet to experience any massive fallouts. However, people who have overextended themselves in terms of debt may be in danger. This may negatively impact the buy-to-let market. However, some panellists are of the opinion that it may experience a rebound, as availability has become limited again (‘buy on plan’ is no longer feasible due to the rise in construction costs).

Tourism

The period of covid recovery seems to be slightly shorter than originally anticipated. Fixed rent was perceived as risk-free, but covid-19 has shown the suitability of a revenue sharing model.

The country has not succeeded in attracting quality tourists. To remedy the situation, a master plan for the whole island must be introduced. The aesthetics of the whole island must also be upgraded in order to reverse the trend of uglification and attract this valuable segment.

Information: a scarce resource

Statistics in Malta are notoriously difficult to get hold of. Contract figures issued by the Central Bank and the National Statistics Office are not really indicative of markets in their present state, because they could refer to preliminary agreements signed on plan three or four years ago. There are some crude estimates on whether property prices or rental rates are going up or down, but there is not enough data to fully understand the market.

Updates and further information about the summit’s developments can be followed on the official blog and on its social media channels.

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