Government should look into policies of affordable housing for younger generation, economist suggests
The price of property has been an issue that has been brought up in the media time and time again.
The added issue of inflation means that people are feeling the strain on their pockets more.
With the budget around the corner, The Malta Business Weekly spoke to two economists and a financial consultant, asking them to provide their view about the high property prices – what kind of impact this is having, what impact it will continue to have and whether they foresee a situation where it becomes unsustainable.
Clint Azzopardi Flores, an experienced economist with several EU roles under his belt, said that global inflation is fuelling property prices given that the costs of raw materials increased. “Nonetheless, when it comes to the construction industry, markets readjust. If there is a bigger supply than demand, prices readjust if disposable income is not matching the price increases. Property owners need to sell the units, so the rate with which property prices rise, subsides in the long run. That is the readjustment. Else, property owners would need to put the unit for rent. And even rent would require such a price readjustment.”
However, he believes it would be a good idea to give tax incentives to transit to greener practices.
“Policies in Malta are skewed towards building and this might also fuel speculative prices. For instance, the tax rate on rental accommodation is a 15% flat rate. Therefore, those in the possession of capital would rather own an apartment and rent it, as tax is lower and rental prices are high. This kind of modelling might be a little unsustainable, if the tax on
Economist Jean Paul (JP) Fabri
rental accommodation is not properly collected to channel funds elsewhere including grants to new homeowners.”
In the last budget, he said, the government introduced a scheme that re-channelled funds to assist homeowners. “The scheme involves a €10,000 grant over a period of 10 years. This kind of modelling helps younger couples to purchase a property. This is why tax must be efficiently collected, so that funds are rechannelled elsewhere, including monetary grants to assist the younger generation. Additionally, the government must look into the policies of affordable housing for the younger generation. They must create a financing model for those on a lower middle-income bracket, as well as single persons. It has become difficult for single persons to purchase a property.”
“Surely, the government must ascertain that taxes on rental accommodation are collected to cover other areas, not just the re-channelling of funds elsewhere, but also the infrastructure of our towns and villages. Otherwise, it becomes unsustainable.”
Economist Jean Paul (JP) Fabri, who is a founding partner at Seed Consultancy, said that the property market main challenge is one of affordability. “Whereas being a small island will always put upward pressure on process, the surge in demand, both speculative and necessary, has led to an increase in prices coupled with inflationary pressures.”
“What is needed is definitely a more evidencebased policy and alignment between market dynamics, forecasts and planning to ensure that there are no market failures. In addition, efforts must be directed towards improving the take home pays of residents and this needs to be done through improved education, skill take-up, productivity and enhancing the value added of industry sectors in Malta. The rental market will continue to increase and also some changes in the planning processes to cater for temporary accommodation should be considered in order to segment the market according to the demand,” Fabri said.
Financial consultant Silvan Mifsud, who is a director of Advisory at EMCS Tax & Advisory and also a council member of the Malta Chamber of Commerce, however, said that the latest statistics on property are showing that the amount of concluded sales agreements is slowing down.
“This could likely indicate that while this market will continue growing, the frenetic pace of growth experienced in recent years, will calm down in the coming months. Ultimately, property prices are the results of the usual demand and supply market forces. As we all know, with a heavy influx of foreign workers, demand has been strong and this has resulted in a strong increase in property prices,” he said. “However, if we are able to adapt Malta’s economic growth model which on one hand reduces the amount of foreign workers coming to Malta and on the other hand delivers more value added per persons employed, hence resulting to better wages per person employed, we would be helping to move towards better affordability in this market.”
The first part of this interview, which focused on the main points they would want the budget to focus on, inflation and the economic model, was published in last Sunday’s edition of ‘The Malta Independent on Sunday’