Myth – the construction sector is Teflon coated

                                                                 Source: Mr.George Mangion¸ PKF Malta

As Published on Sunday Independent¸ Sunday 28th April 2013

Business observers have penned a number of articles on the fortunes facing the property section in general and the construction industry in particular. Most dreaded the onset of a recession in the property market hoping  the sector is resilient yet consternation was uttered when recent reports show that the number of vacant premises has reached 70¸000 (up from 53¸000 five years ago). Naturally estate agents put a brave face and rebuff any doom mongers who predict any significant downturn that plagued other EU countries. Pragmatists on the other hand lament about a disparity between the supply and demand for property ( particularly top-end condominiums). Many examples abound¸ such as the Fort Cambridge¸ Pender Place¸ Portomaso extension¸ Tigné Point¸ and A3 Towers. One cannot forget to mention the millions invested in high-end luxury development still in an embryonic or uncompleted stages for example the massive hole excavated in the centre of Gzira which was projected to be developed by Globe Capital in  the Metropolis mega project. And this not to forget the gigantic Mistra Heights redevelopment (remember the White Rocks mega sports complex?) which are both waiting for investors to start building. Two years ago Central Bank dutifully cautioned  that non-performing loans in Malta’s corporate sector rose by almost 40% to €527 million. Included in such non- performing loans one finds the €40 million call-in by Bawag Bank of a loan by the JPM Brothers firm planned for the construction of the Mistra Heights mega-complex. It is interesting to read that in 2010 the construction sector was responsible for 23.6% of total loans in non-performing category.  There was also a marked increase in rescheduled facilities¸ which rose by 14.5% mostly composed of facilities offered to the construction sector. This trend in credit rescheduling further points out the notion of negative sentiment in this sector which in banking parlance one encounters  in a Central Bank report that“. Gross problematic assets increased to 9.3% as a percentage of total loans.” Is it a significant that the number of building permits issued by the Malta Environment and Planning Authority (MEPA) decreased by 22.4% year-on-year last year? This was mostly due to a lower number of permits issued for apartments (80% of the total issued) and maisonettes although some pundits also attribute the decline due to the irresponsible rise by MEPA of charges for its permits. Taking 2010 as an example one is curious to question that as the year was blessed with an  impressive growth of 3.7% in GDP still one finds that the number of issued permits was 16.1% lower than in 2009. So who is to blame for this situation? It is true that as part of blotched  reform Mepa  it has nonchalantly tripled its charges for permits that year  ¸even so the cost of a permit cannot constitute the principal cause for the deterioration in sentiment. With hindsight one may also try to blame the doom mongers for precipitating the drop in building activity. Y