This interview has been prepared and compiled by Design & Build, and has appeared originally in Design & Build’s 12th issue, released this summer.
Design & Build met up with Hon. Chris Agius, Parliamentary Secretary for Lands and Construction who shared his views on the current state of the real estate sector as well as discussed reactive measures the Government has implemented to mitigate the effects of such an unprecedented situation as that which has arisen due to the Covid-19 pandemic.
Hon. Chris Agius has been a member of parliament since 1996. Since then he has had stints as Parliamentary Secretary for Research, Innovation, Youth and Sport;s and Parliamentary Secretary for Planning and the Property Market. Nowadays he occupies the role of Parliamentary Secretary Responsible for Lands and Construction. In the last three months he has also been tasked with the responsibility of the Joint Office that administers government property, the Building Industry Consultative Council (BICC), and the new authority still in formation and which will replace the Building Regulation Office (BRO).
These changes are being made in order to sustain the growth garnered by this industry which is so vital to Malta’s economy. Hon. Agius explained that the related laws have not quite changed at the same pace of this growth. He pointed out that unfortunately in 2019, the industry suffered three unfortunate construction incidents – the implementation of new laws, which will shortly be discussed in parliament, will identify and outline the many facets to the industry, along with the clear establishment of roles and responsibilities.
The regulation of the Real Estate sector has seen the first reading of a proposed law being presented to parliament earlier on this year. This is a result of months of consultations with the industry stakeholders and will follow further lengthy discussions prior to its formal adoption. Hon. Chris Agius explains that this action is part of Malta’s obligation to abide by the 5th EU Anti Money Laundering Directive issued by the European Union. And hence, provisions will be introduced to Maltese law so as to implement some of the recommendations made by the Council of Europe’s MONEYVAL division in its Fifth Round Mutual Evaluation Report on Malta.
The licensing of real estate agents, brokers, and property consultants is a very important and much needed step to ensure that no abuse is carried out. Might this move also indirectly serve as an entry barrier for new and young market players? we queried.
He clarified that the introduction of a license has been in the pipeline for quite a while – there have been many discussions with key players in the sector and eventually the proposed law passed its first reading. The reality of it, is that no one is barred from starting real estate operations. What is being made obligatory is a license to operate. “I totally subscribe to the introduction of a Real Estate License. I think we all agree that these persons are giving advice to someone making the biggest investment of his life. So are they really qualified to give the right advice on the different conditions that a buyer might encounter?”
The license will be required for those entities carrying out more than two transactions a year – this law will bring more synergy and organisation as well as for Malta to be able to meet its international and European obligations in terms of money laundering. The cost of the license is yet to be established but the course to obtain the license will be available through a number of entities that will be approved by the National Commission for Further and Higher Education (NCFHE). Hon. Agius estimates that there are around 2,500 individuals operating in this sector. The deadline to obtain the license has been set for December 2021 so there is ample time for everyone to become compliant.
Yet, one questions if this is the right time to implement such a law. Hon. Agius has no qualms about it. The introduction of this license has been spoken about for the past four years – but momentum was gained in the past year and a half. Hopefully by the time is it launched, Malta would be back on track. “This is a highly interesting and active sector – there are so many people involved in this industry in various way – construction, sales of land, demolition, electricity, water installation – this is an industry that needs to be nurtured and protected and enhancing measures should not be delayed.”
Despite accentuating the need to nurture the industry, Hon. Agius is quick to emphasise that the Government is keen to support third parties who are affected by construction works in their area – particularly if projects are large ones. Hon. Agius stressed that these should not be allowed to drag on for years.
Covid-19 has resulted in the Maltese economy taking a sharp nosedive alongside its foreign counterparts. Some sectors – particularly tourism – experienced a total lockdown, with complete stoppage of activity, whilst others such as retail and the rental market incurred a drastic performance regression. Government has issued a number of incentives to save industries and their employees but of course there is a limit to how much these packages can be stretched.
“The typical Maltese individual and entrepreneur is resilient. They have shown in the past to be capable of steadfastly facing whatever trials are thrown at them – I am confident that we can be one of the first countries in Europe to emerge stronger from this.”
A question that has been asked repeatedly is about the ill-effects of Covid-19 onto the rental market – Would it be short term, or is this bound to have a long lasting effect? “The number of ex-pats – particularly those within the igaming and financial services industries working in Malta, have driven the demand for rented accommodation in the previous years. So far, the pandemic has had minimal impact in these areas and they are honouring their rental contracts which generally span between one to two years. Unfortunately, other foreign workers employed in the catering and tourism industries have suffered redundancies and unemployment forcing them to return home. Apart from closed properties, landlords are now being faced with requests for lower rents – an example of this being that some properties which were previously being rented out at €1,000 have now gone down in price to €700. 6,000 workers have been repatriated since the pandemic started. This has perforce resulted in heavy losses from rental income as many properties lie dormant.”
When it comes to the Tourism industry, Hon. Agius is optimistic that the industry will recover and will regain the strength it had prior to March. Internal tourism will be a short term exercise that hopefully will see the Maltese population enjoying staycations in local hotels. The opening of the airport, scheduled for July, is to see approximately 24 destinations opening up, and whilst numbers might be initially low, Malta will sooner more so than later return to being the magnet for tourism that it actually is.
With the challenges that Malta is facing, what is the Secretariat doing in order to amortise the effects of the virus? Hon. Agius explains that the schemes launched recently were through the efforts of the Ministry of Finance which administers public funds and the Ministry for Social Services. The two ministries have assisted a number of sectors and also individuals. Initiatives included assisting a number of employers financially to ensure that they keep their employees on their payroll, whilst those individuals who lost their jobs were able to benefit from a number of incentives and financial mechanism to keep them going.
“It is a reality that a number of sectors did not fall under the Annexes published by the Ministry of Finance and Malta Enterprise. However, the proverbial war chest has its limitations and cannot be stretched indefinitely. Government is doing its utmost to assist as many people as possible – naturally giving priority to those who were hit the hardest.”
Going back to the construction industry, developers have commented that a substantial part of their expenses is tax related – approximately 40% of the cost; and that under normal circumstances such costs can be amortised by the market’s strength but they currently leave little return on their investments, if at all. Would there be a possibility that Government reduces these taxes until the situation is stabilised? Hon. Agius explained that Government was quick to respond to the Covid-19 situation by implementing a number of deferment of tax related payments – these included Social Security, related taxes and Value Added Tax.
Hon. Agius replied that “in an ideal world no one would pay tax but in reality this is impossible,” continuing to clarify that “the Government’s measures were crucial for the industry to move from a slow moving one to one with high levels of growth – this is what has made it a large motor of the economy. Incentives have been introduced as far as 2014 when the ‘first time buyers’’ scheme saw over €5,000 of savings. Meanwhile, during this period, the Government and the Malta Developers Association discussed a number of proposals submitted by the latter. The result of this were a number of reductions, including a cut in capital gains taxes that were aimed to further boost the property market. This measure will cost government €32 million, yet this will result in the contribution of the sector towards economic recovery. One has to note that the property development and construction sectors were one of the few economic activities which continued to operate and sustain their employees during the pandemic.”
In supporting Malta’s families in these times of need, the Government is increasing housing subsidies for families wherein one of the parents lost their job or had to stop working to take care of children. Hon. Agius explained that all beneficiaries are means tested – meaning that someone on a minimum wage will be supported differently than a person earning a higher salary. Beneficiaries are so chosen also to curb potential abuse.
Another way in which Hon. Chris Agius’ Secretariat is amortising the effects of the virus within its areas of responsibility is through the fact that the Lands Authority, which falls under the responsibilities of his Secretariat, is Malta’s largest landowner. “This translates into a substantial number of rentals from which the Lands Authority collects the rents and then passes on these amounts collected to the Consolidated Fund. Despite the need for collection of such rents, this department was not hot on the heels of its tenants, fully aware that many people have currently fallen into difficult times.” Whilst the Joint Office manages its vacant properties, it is the role of the Housing Authority to maintain such buildings which then are allocated to people requiring accommodation.
Covid-19 brought with it high levels of uncertainty to many. Nonetheless, Hon. Agius, in wrapping up this interview could not help but contemplate how life has calmed down in general – little traffic, definitely less pollution and a more evenly-paced life. This is not a utopian situation: the survival of Malta’s economy depends on the sheer energy that the Maltese imbue into the country. I am confident that the resilience by which Malta’s citizens are so well known will truly kick life back into the country’s economy, this time with a newly acquired respect to the importance of serenity at all times; to life as well as business. And in so doing, Malta will emerge stronger and better than ever before.”
