In the short term, probably not much. Higher constructions costs are likely to be absorbed by big developers. Smaller developers and DIY renovators will feel the pain. This is likely to mean higher prices down the line for converted traditional and high-end property, but will not affect the bulk of the market before the next generation of licencing and safety rules kicks in.
What are the new rules, in a nutshell?
New rules concerning works in construction sites across Malta came into effect on Tuesday, 25 June 2019. The new rules followed a hurried consultation on the back of three building collapses, allegedly caused by poor construction practices. The legislation (Legal Notice 136 of 2019) attempts to address what is perceived as rampant deregulation in the construction business, with many contractors operating without a mason’s licence and essentially no other licencing requirements for other construction professionals.
The new legislation mandates, among others, higher fines for non-compliance, the necessity to appoint a site technical officer, and other provisions to ensure there is no damage to third party properties. The Kamra tal Periti has published a reasoned view on the new legislation, if you’d like to read more on the subject.
Big contractors can absorb the extra costs
The new fines – up to EUR 50,000 for non-compliance with requirements such as filing condition reports for adjacent properties, and taking out insurance for third party damage – are much steeper than the previous ones and yet unlikely to make a difference to big developers. Compare with the building regulations in the UK, where an unlimited fine may be imposed on the transgressor. Overall, Maltese regulation remains light touch compared to other European countries.
Furthermore, three other factors come into play to ensure that prices are not affected by the new legislation:
- – first, current profit margins are such that developers can absorb the excess costs. The bulk of the cost is not regulatory, but labour and capital expenditure. Unless professional licencing is enforced in the future, which would further limit the number of workers on the market, it is unlikely that costs skyrocket
- – second, much of the current supply is being sold off-plan (sometimes, even without planning permission – you’re just buying drawings on a piece of paper) and is therefore months or years away from being built
- – third, demand fundamentals appear unchanged
“Weekend builders” and small developers will take the hit
As a small developer told me this week: “I can still work because I have a mason’s licence. Many others – even with years of experience – have stopped because they never had the time to take a licence”.
While fulfilling the modest requirements set out in the updated law is a minor burden to established developers, that is not the case for everyone. The additional insurance and bank guarantees, the increased regulator oversight, and the possible penalties, can really sap the appetite of small developers and DIYers. This is unfortunate, because the market is already suffering the lack of supply of well-priced traditional property like farmhouses, houses of character etc, and especially finished property.
With the big developers focused full-time on apartments, apartments and more apartments, the single dwelling section of the market is very much underserved. We have already seen finished homes and holiday home prices reach nosebleed heights. Increased regulation will only exasperate the trend. On the other hand, the price of unconverted property that cannot be demolished (for instance for conservation reasons) could moderate somewhat. This would be a welcome change.
Ultimately, these are teething pains for a country that has long had a very light touch approach to building regulation and low labour costs. Teething pains are common.
Down the line, we can expect licencing requirements to kick in for construction professionals and greater scrutiny on construction site safety and practices. These all have the same effect: increased costs. At worst, the changes will cause existing large firms to corner more of the market, and will drive out smaller companies. The question is: will the market be able to cope with higher costs?