The property topic is one of the main topics of discussion. Many commentators provide their opinion on the development of the property industry and these tend to differ radically. Some say that the property market is sustainable and will continue growing, whilst others say that this is a bubble waiting to explode, leaving the country in tatters. Both sides are on opposite spectra, making potential buyers on edge as to whether property, at this point in time is an ideal investment. Although property in Malta has always been the safest investment with the price gradually going up along the years, in this article we will discuss the different scenarios of what will happen in the eventuality of a property market crash. It will be messy!
Construction projects will subside
If property no longer retains its value, most developers would cease development projects due to the lesser demand. This decreased demand will bring to the fore lower prices, which will impact developers who have finished their projects but could not sell. This will create problems for those who have high debts with minimal collateral to serve as contingency. In this respect, only the very few with the best business models would survive such an economic downturn.
A downturn in property prices and demand would see those who took a loan to buy property for investment struggle. If we have a family which already has a mortgage, together with a second loan for rental investment, they may be put in a precarious position if they do not gain money from rent and are forced to pay two loans from their salaries. For those who have just one loan for the home they reside in, they may be less impacted, since they do not rely on their residential property for income. In this respect, people with a rental investment loan may not have the financial means to pay their commitments, ending up with higher interest rates and the bank up their back. In an even worse situation, they may end up with their properties taken away from them.
The property market is one of the key pillars of the Maltese economy. If it plummets, many will lose their employment. This will include construction workers, interior design companies, architects, site managers, real estate agents and various others who are both directly and indirectly linked with the sector.
In the wake of recent reports highlighting volatile performance from one quarter to the other, it may indeed be a scenario which we could face. For the sake of Malta and its people, let us hope not!