This is my article published in this month’s Money magazine.


The resident ghosts

Not much information is provided by the government on the sale of citizenship. But in an interview with an industry magazine recently they did say sales are on the increase and now they’re handling an average of 20 applications a week. That’s 1,000 more passports a year, a sales rate which is double that of 2017, by any measure an exponential growth.

The interviewee, Roderick Cutajar, who heads the citizenship program, said most of the new applicants chose to purchase property in Malta rather than rent it. A 100 applications approved in 2018 yielded €16 million of what Mr Cutajar called “investment”, by which he means contracted expenditure in purchasing property.

Traditionally foreigners buying property here were not deemed as investors as such. The purchase of property as an economic activity does not create jobs or a sustainable turnover beyond the construction, finishing and furnishing of the location. That is obviously good money but like mining, once you extract the value from a property, that’s it, you’ll need to move to the next plot.

Mr Cutajar does not give a statistical split of purchased property compared with leased but he does say it’s a considerable majority so let’s work it out using the 80-20 rule. Sixteen million euro for 80 properties means the properties purchased by these high net worth ‘investors’ cost an average of €200,000 each.

We know what €200,000 buys you these days in Malta. If Mr Cutajar’s figures are to be believed — and who’s better placed to know? — the citizenship scheme is not creating a demand boom in the higher end of property development. Rather it is eating into the sort of value local first time buyers are more likely to be interested in.

A recent visit to Malta by the EU Justice Commissioner Věra Jourová reminded us of the EU Commission’s concern that Malta is not fulfilling its promise to only give passports to people who have lived here for at least a year.

This rule was not there in the first law setting up the passport sales scheme in 2013. It was introduced after the Commission had to respond to European Parliament complaints that Malta was selling European citizenship to people who had nothing to do with it.

Now the Commission is recognising, and loudly complaining, that the residency rule is largely ignored by Malta.

It is therefore reasonable to conclude that even for the European Commission it is blindingly obvious that the ‘investors’ buying €200,000 apartments (some 8 apartments a week) are not actually living in them.

Let’s sum that up, shall we?

Eight apartments in the first time buyer’s bracket are sold to people that are not going to live in them. And that rate can only be expected to grow. That’s eight apartments every week added to the infrastructural and construction pressure on the country and eight less apartments in the supply range for first time buyers ensuring prices are kept high not through the lack of physical supply but the lack of available keys to doors that are permanently shut.

Property developers have orders lined up to deliver 8 apartments a week at the low end of the market with handsome margins for them and their contractors. Real estate agents work over-time to collect commissions on low effort transactions.

But presumably these people are seeing that this can’t possibly last for ever unless we’re considering annexing Libya.

People who ‘invest’ in Malta with no interest in it are indifferent to over-development. Environmental degradation and social exclusion are not something people who only fly here to sign papers and collect their passport are going to be bothered much with.

And, sadly, people who are seeing the ongoing boom as a momentary cash cow that they must gobble up before someone realises it is too good to be true and take it away, are ignoring the already palpable consequences that will only get worse.

The key word here is sustainability. I am all for economic openness and reducing restrictions to investment and trade. But there was some wisdom in old age restrictions on the purchase of property by foreigners.

When Malta joined the EU that was one of the few permanent exceptions it negotiated in its terms of membership: purchasing property in Malta by non-residents would continue to be regulated in case it got too much and the behaviour of a very restricted market, a very fragile environment, and a social fabric built around the levelling value of home ownership would start acting up.

It is now more than acting up.

It is unrealistic for first time buyers, or even worse middle-aged people in their second marriage, to secure funding to purchase decent housing. The first rung of this ladder is getting higher and higher.

The beneficiaries of the construction boom may care little but the reduction in the economic security of the domestic market is a threat to the entire economic fabric here. With more people exposed to the insecurity of febrile rent costs, people are less confident making prudent investments and often find themselves with less money than they need to sustain their lifestyle.

A widening gap between property owners and the rest creates economic disparities that quite apart from the unfairness of it all start firming up other very expensive disparities: social dependencies, gaps in the provision of health services, differences and degradations in education for a portion of the community.

Above all the degeneration of our environmental fabric — urban and rural — is a direct threat to the sustainability of other very important economic sectors: tourism, and services that are relocated to Malta not for its passport sales but for the quality of life here. People will not choose to work and live in Malta if it used to be beautiful.

Nostalgia trips don’t pay the bills.

The test of our mettle as prudent and wise guardians of our heritage is now. Are we able to restrain greed and manage the economy of our country to do more than get rich quick?