2017: an epitaph for sea urchins

Mr Mangion is a senior partner of PKF an audit and consultancy firm, and has over 30 years experience in accounting, taxation, financial and consultancy services. He can be contacted at gmm@pkfmalta.com or on +356 21493041.

This was carried out by foreign consultants and was subjected to extended public consultation. Once approved, the plan (as modified) will start to be implemented next year. One of the main protests coming from residents is that rents and selling prices will go up too much, forcing them to leave Paceville (gentrification phenomenon). It is highly likely that this could happen: the dwellings located in good, nice areas are always revalued upwards. This is not meant to be only a threat; it could also be a good opportunity for those who intend selling their properties. However, it is very important for the government to establish rules in order to avoid speculation, and protect the interests of the inhabitants who are not tourists.

The ambitious project includes land reclamation linked to the Portomaso complex. Long-suffering environmentalists remind us of the 50,000 vacant properties, posing the risk that property surplus will continue to increase, as would the dependency on the construction industry. Furthermore, recent developments in the Tigné promontory show a number of vacant luxury apartments unsold for the past six years (albeit more towers have since been approved and estate agents had a sales bonanza this year). Economists warn us that demand for luxury properties is risky and quietly remind us of the millions in unsecured bonds issued to finance projects. Banks have been warned not to rely too much on mortgage lending while the incidence of non-performing property loans do loom ominously ahead. But can we hold progress? The European Commission and IMF recommended close monitoring of developments in the property market in view of exposure to the financial sector. Countries like Spain have faced financial collapse for their total reliance on the construction industry which ultimately endangered their financial stability. A vivid example is Marbella (located in the Province of Malaga as well), where some dwellings were built on prime beach locations. After many years, the Spanish court ruled that those permits are illegal, as they were all built in green areas mainly because of lax controls and an overzealous approach by the mayor and hints of corruption by the administration.

In Alicante (near Valencia), this last factor plus the speculation provoked an uncontrolled growth of the city which has in turn produced a chaotic touristic plan. It is a known fact that a real estate bubble took place in Spain during this period and when it burst, it left a number of bankrupt developers and shook the solvency of a number of top Spanish banks. It is essential to remember that Spain witnessed the cruel effect of an unbridled property bubble exacerbated by issue of uncontrolled permits over use of land, spiced by speculation and massive construction, especially in the coastal areas. It is true that while the going was good Spain enjoyed a boom and saw these luxurious dwellings bought by locals as second residences. In many cases, the owners were foreigners who had great difficulties to offload them when the property market collapsed.

Therefore, it is not surprising that the Paceville master plan fostered such a negative dialogue with the population and other NGOs, even though there are positive aspects as everyone agrees that the environs at Paceville urgently need a boost. It is certainly important to control gentrification and to ensure that the Government properly regulates all the building permits, taking care of the citizens’ concerns, and following some of the MacDonald positive recommendations, particularly those increasing the utility of public services in the area.

Can we learn the lesson from Spain that one should never let residents fall victim to the private interests of unscrupulous speculators?

Back to the subject of reclamation, it is interesting to read about a study authored by leading British consultant Scott Wilson which inter alia states that this could only be feasible if it is subsequently developed along lines similar to the plans for SmartCity – which never materialised. SmartCity in 2006 had been ambitiously evaluated as producing net annual benefits to the economy of up to €800 per square metre. There remains a question mark over whether there is sufficient demand for this scale of development of 22 high-rise towers.

Another expensive study commissioned by MEPA in 2007 (which cost the princely sum of half a million euros) concluded that land reclamation projects are too costly. The accompanying report, assigned to Maltese consultants ADI and leading British consultant Scott Wilson assessed the economic and environmental feasibility of land reclamation in 11 different forms along two areas on the Maltese coastline identified in a previous study by Danish experts Carl Bros. The two chosen areas were the coastline between Pembroke and Qawra and the coastline between Marsascala and Ricasoli. On the assumption that land obtained through reclamation would be available for economic development, the study confirmed the “potential for strong net economic benefits to be reaped”. This is due to relatively high land values in prime sites, as well as the potential to generate a rich multiplier effect with high value-added investment projects (provided demand persists).

As a general rule, land reclamation using waste material is technically feasible, providing it is bunded and expertly contained. Without containment, waste material is subject to rapid erosion and dispersion across large areas, which is environmentally unacceptable. Simply put, bonding would take the form of a breakwater, constructed by one of a number of methods, including a rubble mound, supported by concrete or steel caissons. But not everything comes easy when using bund construction as it is only feasible in areas of the seabed shallower than 20 metres (i.e., areas within the minus -20m contour). The study also states that locally there is reasonable knowledge and technical knowhow for construction of breakwaters, but project management has to be efficient otherwise costs and risks can increase rapidly.

The cost of creating the reclamations in shallow waters was assessed as ranging from €42 million to €546 million. As can be expected, economists caution us to study the potential of attracting HNWI possibly by extending the citizenship by investment scheme and by other means of promotion. Paradoxically, it was the extension to the coastline in the preferred shallow area on the Bahar icCaqghaq coast that proved to be most profitable, but at the same time the area was excluded for ecological reasons. One wonders how the feasibility of the Portomaso reclamation compares as there the water is deeper.

Politicians cannot halt the Dubaification which is hitting our shores, so does this mean we cannot save defenceless sea urchins and luscious Posedonia Oceania meadows which are the major environmental victims of land reclamation? Luckily, this habitat is protected under EU law, and only a development of national importance would justify construction in this area. In conclusion, it is tempting to carefully regulate land reclamation projects as studies show they would generate jobs plus additional benefits of accelerated GDP growth which yield a rate of return to developers of 10 to 40 per cent. The hopes of deliverance for our sea ecosystems fade as the cash registers ring happily next year.

A prosperous New Year to all.