‘Investing all funds into property is ridiculous, we need to find a balance’ – BOV CEO Kenneth Farrugia

In a tit-for-tat exchange in a panel discussion during the National Property Conference on Tuesday, Property Malta Chair Sandro Chetcuti argued that property is the only good investment for people in Malta. Meanwhile, BOV CEO Kenneth Farrugia argued that it would be ridiculous if one is to only invest in property. 

 “The reality today is we cannot put all of our money into property because it’s crazy (‘hija ġennata’). Today we need to reach a balance,” he stated. 

The panel titled ‘The Property Price Puzzle – pricing, affordability and ESG considerations’ included Mr Chetcuti, Mr Farrugia, Economist and Professor Marie Briguglio, Zanzi Homes Co-Founder and CEO Steve Mercieca and Housing Authority CEO Matthew Zerafa.

This discussion took place during the launch of the latest edition of the Construction Industry and Property Market Report 2024, conducted by KPMG and published by the Malta Development Association (MDA), supported by Property Malta.

When asked why solely investing in property might not be a good idea, Mr Farrugia shared that property does not guarantee income security. “This might not be immediately apparent, but when one reaches retirement age and wishes to maintain their current standard of living, it is essential to ensure a sustainable income from a well-diversified investment portfolio,” he stated.

He continued that a strong portolio should be based on four assets: Deposits for everyday liquidity, investment in bonds for periodic income, additional capital in shares as a long term plan that could also benefit the next generation, and then property investment. 

“All have different features in terms of accessibility,” he continued. 

This discussion was prompted by the panel’s first intervention by Mr Chetcuti, who noted that banks today, compared to 20 years ago when he started out, provide better opportunities for property investment.

He observed that property investment in the islands is such an attractive opportunity that banks now frown upon individuals who prefer to keep their money in savings accounts, stating that they are only keeping such clients “as a favour.”

Building on earlier discussions, Mr Chetcuti was asked whether the property and development market has become oversaturated. To which he replied: ” No, what saturation? There’s still work to be done.” 

On the other hand, Mr Farrugia elaborated on how the Central Bank of Malta implented a strategic directive to provide more regulation in the development industry. For example, the bank offers a loan covering 90 per cent of the purchase price for first-time buyers (requiring a 10 per cent deposit) and a 75 per cent loan for second-time buyers.

He added that he firmly believes this strategy was introduced at the right time, as demand had significantly increased, and stated that “it’s good to have better control.”

‘Other European cities have been dealing with overpopulation for years’ 

Property investment in Malta has surged in recent years, driven by a combination of its attractive tax schemes, the island’s strategic location in the Mediterranean, and demand prompted by the influx of foreign workers imported to drive the Maltese economy. However, this influx of investment has also contributed to rising property prices and a growing demand for affordable housing.

Discussing demand and overpopulation, Zanzi Homes Co-Founder and CEO Steve Mercieca compared Malta to a city. “Other European cities have been grappling with overpopulation for hundreds of years, and we are only just beginning to face these issues. Therefore, we need to focus on affordability and housing. Fortunately, to this day, we aren’t seeing homeless people,” he commented.

He went on to say that, based on his experience, there is strong demand but insufficient supply. “There is no available property on the market, and without proper foresight and planning, we risk seeing many people end up on the streets,” he added.

When asked by the moderator whether it’s time to hit the brakes, Mr Chetcuti answered that “there seems to be a fear of prosperity, and I don’t understand it. What we need is good regulation and planning. Moreover, we must ensure these rules apply equally to everyone, because that’s something that really frustrates me. And I’m saying this so that politicians take note.” 

Why isn’t regulation being implemented? ‘Political influence’

Throughout the panel, economist Marie Briguglio remarked that she was pleased by other discussions that took place during the conference where the general consesus was that the industry requires more regulations. 

“This question we need to answer now is, why don’t we have a better governance if it is highly sought after? And there are a number of reasons,” she said. 

She continued that perhaps the easiest answer would be that people in institutions tasked with implementing change are incompetent. “That is not true, there are many individuals who are competent in the institutions. 

“Another reason is political influence (‘indħil politiku’). If you have an institution that employs competent individuals that follow the rules, then what is stopping them from effectively implementing change? Political influence,” she continued. 

Furthermore, she expressed her belief that Malta cannot achieve good governance if the only instrument that the Government uses is to spend money. 

“Goverment should use the tax as a tool not subsidies. It’s like you have an entire tool box and all you use is a hammer. We have a tendency that, to be popular, we spend money. Subsidy here, benefits there and other tools are not being utilised. That is not good governance,” she said. 

So, what’s the next step? She noted that there is a lot of effort and energy being put into addressing the implementation of the right changes.

She proposed the establishment of a rapid task force, bringing together various entities and stakeholders, to address urgent matters and avoid creating something overly complex with numerous clauses.

“The task force should focus on, say, five key measures that are most critical to ensuring their safeguarding, with the expectation that everyone in the industry will adhere to them, no matter what. Am I being too optimistic? Perhaps, but if we want a vision, we have to start somewhere,” she concluded.