I vividly recall that when I was a young boy Christmas was a time to look forward at. Parties, presents, Christmas Father, participating in and most often winning the Father and Son Crib Competition at school and last but not least a short break from school following the hated and sarcastically branded Christmas Exams. Of all however what used to impress me most was the dominating figure of the angel placed on top of our modestly decorated Christmas tree at home. ‘But why on top of the tree?’ I once asked my grandmother who never missed the annual appointment of the traditional Christmas lunch at our home. ‘The Christmas Angel brings the good news of hope to all humanity in a World that is in crises’ was her prompt answer emphasised by her typical loving and caring smile. I felt the answer satisfied my curiosity even though for a nine year old boy it didn’t really mean much.
Now that I have grown older and my grandmother is no longer, every time I come across an angel on a Christmas tree I recall and understand better what she meant. Hope, or better the capability to be positive in times of distress is probably the greatest of all virtues that one may possess in life. This in particular when the World we live in is apparently passing through unprecedented economic and social troubles. For those like me who have a keen interest in the developments of the global real estate market can understand well what I mean. Lately the property market has once again hit the headlines of the international news with the newest crises being announced in Dubai. The property developer Nakheel which epitomised Dubai’s rise, turning elaborately arranged man-made islands into some of the most sought-after properties in the Emirate, is in dire financial trouble. Indeed, the property market anywhere in the world is not exactly a bed of roses at the moment. Such negative feeling is further accentuated by sluggish international economic growth, talks of mass dismissals, food inflation, sky rocketing fuel prices and the ‘credit crunch’ seems to be the buzz word on the mouths of many.
There is also no point denying the fact that the developments on the global economic level have an impact on the local level. This was the latest underlying argument of the Minister of Finance in presenting the 2010 budget for Malta as a strategy to sustain employment levels and boost economic regeneration. Behind these pressures perhaps the last thing most people think about are the benefits of such a situation. When it comes to real estate it is easy to see the problems, ranging from difficulty getting loans; to, owning property which cannot be easily liquidated in time of most need; or, worse off paying mortgage for a home that is now worth less! But referring to my Christmas Angel for inspiration there is a bright side to this view.
To begin with, don’t we normally love the idea of lower prices? Certainly we would love to see a 20% decline in the price of cars or food. What makes real estate in Malta different is that we use it but don’t “consume” it. It is in part an investment that we may have to sell someday. If you were in a house for life, the value could fall by half and it would make no difference. In fact, you might even get to pay less for both property taxes and insurance as a result of the lower value.
That brings up the first benefit of the affects of a recession on real estate: lower prices and lower expenses. For those who have not bought a home yet, this is an opportunity, isn’t it? Certain property in Malta has been reduced to as much as 15%. With that comes lower payments, lower insurance, and lower property taxes. This may be the best time to buy. Isn’t that good news?
But what if you already own a property in Malta? Is there any benefit from the recession affects on –real estate in Malta for you? Possibly. If you have ever thought about moving up into a more expensive property, this may be a great time. You may have been thinking it’s terrible that your own property is worth €15,000 less than it was five years ago, but what about the bigger home you have wanted? It may be selling for €35,000 less than a few years back. That’s an opportunity. That’s good news!
But there are two more long-term benefits to the whole real estate scenario we are experiencing. One is that prices of property in Malta are getting back in line with what is actually affordable. People with ordinary jobs may once again be able to buy a property, which means that prices can stabilise soon. And by soon I mean soon. Let’s face it, prices just went up too fast and too far. Many who overstretched their affordability budgets to buy a property in Malta only did so with the hope to hang on long enough to sell for a profit. The market made gamblers out of home buyers, and the last ones to play lost big. That brings us to another benefit of this housing slump: Big lessons; 1) Plan your investments and future relative maintenance costs; 2) Assess the risks – don’t take anything for granted; 3) Be prudent and seriously consider your actual (not potential!) affordability index before engaging in considerable investments; and 4) Today, you may need the expertise of a reputable real estate agent more than you think to achieve you the best possible price.
We learned that in considering investments we should be talking about calculated risks rather than gambling. Blindly investing significant amounts of capital simply because others were doing so and apparently getting rich overnight was just insane. Many took it for granted to consult an interior designer before buying a kitchen but simultaneously got engaged in real estate investments (most often meaning that they have to pay excessive mortgage rates for a life-time!) without even consulting with real estate professionals believing that the commission paid to them was a fee that could be easily be done without. With hindsight such common logic was indeed myopic if not suicidal in certain cases! Though the reaction to these and other mistakes in finance and investment may go too far, the lessons of this past decade will be remembered for a while, and that hopefully means there won’t be a repeat of the run-up in prices based on outrageously easy loans, and therefore there may not be another huge housing slump in our lifetime, nor another banking crisis based on it.
May you have a joyous Christmas and a New Year full of good news!
Andrew Agius Muscat
Mr. Agius Muscat is a Business Management Analyst who has extensive back ground in the business world. He is presently the Chief Executive Offices at the Malta Institute of Management and has held several top management positions. He recently held the position of Group Strategist and Planner for Attard Bros Group, a real estate developement and construction company in Malta.