THE FUTURE OF THE REAL ESTATE INDUSTRY
By Dr Gordon Cordina, Economist
The real estate market is Malta is characterised by a significant proportion of housing which is vacant. According to the 2005 Census, there were over 53,000 housing units which were not being utilized as primary or secondary residences in Malta, which represents around 25 per cent of the total housing stock.
Over the decade to 2005, the stock of vacant properties has risen by around 50 per cent. With the rate of housing development and demand for residences since then, it is likely that this figure has continued to increase. The ratio of housing stock in Malta is relatively high by international standards, though by no means unique.
It is furthermore to be observed that the vacant property stock contains, at one end, housing units in a dilapidated state which do not constitute effective supply, and at the other end, relatively modern and high quality units which are used for international and domestic tourism purposes. These are to be regarded more as business capital rather than vacant housing units.
It is furthermore observed that the accumulation of vacant properties over the years was accompanied by a significant increase in prices. In recent times, however, with the relative downturn in the global economy which had effects on domestic income, but also under the weight of the accumulation of vacant residential property and the substantial real estate price inflation over two decades, the increase in real estate prices has dampened significantly, though by no means suffering the pressures experienced in countries such as Ireland and Spain.
The prevalence of vacant properties in a country indicates a propensity to regard real estate as an investment vehicle apart from its residential use. In order for this to be sustainable, any investment must give a sufficient real rate of return to the economy, mainly through the existence of a dynamic rental market or the opportunity to sell real estate within an economy which is generating sufficient income so as to afford such housing. It is also important that the housing stock available be tailored to the specific needs of a more cosmopolitan society with rapidly changing social outlooks.
There may be a concern that there is a potion of the stock of vacant housing units in Malta which may constitute deadweight capital, with little or no effective rate of return, due to its low marketability. This should be transformed into an economic opportunity to regenerate such housing stock to be more in tune with effective market demand. Out of this, dividends should be reaped by the construction sector, the real estate sector, as well as in terms of environmental performance through the development of housing which is more in line with ecological needs. Ultimately, both society and the economy would benefit from such activity.