Why fewer deeds of sale won’t reduce property prices

The first few months of 2023 have shown a clear trend. Relative to the previous year, each month is showing an increase in the number of promise of sale agreements, a decline in the number of final deeds of sale, and an increase in the total value of final deeds of sale.

So, what’s going on? Is the market slowing down or is something else happening?

Currently there's a lot of public discussion on the state of the market. There's a growing body of data indicating that the construction industry may be slowing down, which is intrinsically linked to the real estate industry.

This newsroom caught up with a number of real estate stakeholders to get a clearer picture behind these numbers.

Steve Mercieca, Quicklets and Zanzi Homes co-founder and CEO, said there’s no signs of things slowing down in the real estate market.

“Definitely not” said Mr Mercieca.

Drawing his attention to the falling number of final deeds of sale, he said, “you need to look at how many promise of sale agreements are being renewed.”

“It’s almost impossible to get an appointment with banks, they’re fully booked.”

While he doesn’t believe overall property prices will fall, he did say that there could be a correction in ‘old build’ apartments, which have fewer facilities, however the price of ‘new build’ apartments will not go down.

Catching up with Frank Salt Real Estate and Homes of Quality director Grahame Salt, he said that the real estate market is doing 'incredibly well'.

“The correlation between the number promise of sale agreements and final deeds of sale isn’t always a straight line.”

He explained that what the real estate industry measures is the number of promise of sale agreements to get an idea of how many properties are sold, not so much the final deeds of sale.

Echoing the increasing value of final deeds of sale, he said, “in terms of overall value, a good number of higher value property is being sold recently.”

However, he explained, it does not necessarily mean that fewer lower-value property is being sold, and emphasised that there’s a good mix at the moment.

Mr Salt also shared that, “banks are taking much longer to process loans.”

Commenting on the rental market, he added that, “the number of expats has increased and it’s driving up demand."

”Fairly priced property doesn’t last long on the market."

This echoes a similar remark made by Mr Mercieca, who said that finding rental property below €800 is becoming impossible.

Andrew DeBono, director at Fine Homes, informed this newsroom that, “there are fewer properties being sold on plan, firstly because there are more properties available on the market that are finished or in shell form, secondly because prices are not going up as fast and thirdly because buyers prefer to see the finished product.”

This may in part explain the rising average value per final deed of sale.

Mr DeBono added, “for some reason, in the past year or so we have seen a substantial increase in interest of higher-end properties, in all areas. Confidence has increased after a lull.”

As to whether he believes that property prices will go down, he doesn’t think so.

“I do not see prices going down any time soon in the residential market, but there may be an adjustment in the commercial property market.”

He explained that property prices depend on demand and supply and explained the factors influencing current prices:

• "The price of raw materials and labour is going up. In the longer term it will reduce developer profits, who will develop less, which will reduce supply, which will push prices up.
• Return-on-investment. Property in Malta is always seen as a good investment. The fact that residential rental prices are going up, both for long and short lets, will push prices up.
• The banks play a big part too, both in their willingness to support the buyers and developers. A bank would consider the amount of idle money that they have, their risk appetite and the trends in the property market. But we are not seeing much change at this point yet, although it has happened in the past. Banks currenty finance 70 per cent of a development project whereas in though times in the past they would have financed 50 per cent.
• Interest rates play a part too, which are pretty volatile at the moment, as higher interest rates increases cost for the developers and investors and also reduces the maximum amount buyers can borrow. From a buy-to-let perspective one can expect a return of four per cent to five per cent, so higher interest rates make buying property less attractive.
• Maltese developers are quite shrewd in adapting to the market. If they won’t have a better investment where to place their money they would hold on to the property, or sell it finished instead of on plan or shell, and we are already seeing this happening."

It is evident that there are several root causes behind the current trend in data. While there may be a slow down in the construction industry, the real estate market looks healthy.