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maltatoday | WEDNESDAY • 17 OCTOBER 2018 11 BUSINESS ANALYSIS www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way JAMES DEBONO THE White Paper on the rental market is very strong in its analysis of the sec- tor especially in identifying the shortage of rental properties for low to medium income earners but the proposals need to be beefed up to offer respite to those suffering from the hike in rents. The construction of affordable hous- ing by not-for-profit entities in provid- ing an alternative both to social housing and private rentals, is one of the long- term measures touted in a White Paper on the rental market. This may well be the logical conclu- sion of the main trust of the White Pa- per; that the country badly needs a stock of affordable rental properties but the state has to be wary of "harsh restric- tions on landlords" which would under- mine confidence in the rental market. The document specifically refers to "third sector housing", a model which relies on the establishment of a finan- cial vehicle which is, in turn, financed by a bank loan. Such a model would do away with private developers expecting a cut from the equation. The rent col- lected would be primarily used to repay the bank loan and in the maintenance of the property, thus entailing no cost to the state, apart from allocating the land on emphyteusis. "This would create the possibility for low and medium income families to move from one housing sector to an- other, with the eventual prospect of be- coming homeowners." This would follow the UK model where housing associations are the main providers of new housing for rent. One major problem which needs to be addressed and is not mentioned in the document would be that of finding pub- lic land to allocate for this purpose. If Malta goes for this option, an inventory of government-owned land and brown- field sites would become imperative. The downside of this could be more land use pressures in a country already struggling with overdevelopment. The White Paper does not entail con- crete plans on how to increase the build- ing stock and even hints that an alterna- tive to "third sector housing" would be a public-private partnership through which private developers would devel- op public land and receive, in return, a margin of the rental income. The Malta Developers Association (MDA) has al- ready expressed its willingness to enter into a public-private partnership with the government in order to provide citizens with more affordable housing. Speaking during a pre-budget meeting with government officials at Castille on 12 September, MDA president Sandro Chetcuti said that such an agreement could help guarantee accommodation for those struggling to make ends meet that would not exceed the cost of €400 a month. Balancing act between tenants and landlords The White Paper which includes proposals to offer stability to tenants is conditioned by a need to reassure landlords that the rental market "must remain inspired by liberal principles." Absent from the White Paper is any hint at rent controls. The document goes a long way in re-assuring land owners that the overall way forward "is not an abrupt shift to a system of strong regulation" and refers to the "negative Maltese experience with rent control mechanisms." The most tangible proposal made in the document is meant to give tenants a degree of security of tenure and to protect tenants from unforeseen rent hikes. This will be achieved through a minimum contractual term with rent increases being capped during the term of the agreement. The landlord will not be bound to prolong these contracts beyond the stipulated period but would have to give the tenant notice of the ter- mination of the lease. But the White Paper does not identify how long the duration of such contracts will be. It simply refers to "a duration of a number of years" or to "multiple year contacts" which would allow tenants to "create homes in their rented accom- modation." This is another indication of the government's caution. Meanwhile the White Paper is very clear in calling for the removal of the possibility of six-month leases, which is identified as a primary cause of instabil- ity in the sector. One major problem is that the success of such measures depends on the will- ingness of landlords registering rental contracts. In the absence of such regis- tration the state would be powerless in enforcing these contracts. The White Paper even refers to cases where landlords have refused to sign an agreement in writing, thus preventing tenants from benefitting from govern- ment subsidies and affecting migrants deprived of residence permits. The White Paper hints at penalties against landlords who fail to register contracts. It also refers to the Italian system where while rental contracts not registered to the authorities are ren- dered null and void, tenants can request the courts to formalise their de facto lease. The diagnosis and the cure The White Paper comes as a realisa- tion that, in the absence of some degree of action by the state, the housing sector is heading towards a crisis. The White Paper itself provides a di- agnosis of what is going wrong with the rental market which is a direct casualty of Malta's growth model fuelled by an increase in foreign labour which has inflated the demand for rentals. This impact is accentuated by the impact of new trends in tourism, which sees land- owners opting for short-term touristic lets rather than residential lets. The major consequence of this has been decreasing affordability. In 2016 a single individual needed to be on a gross income of €20,000 in order to afford a property in the cheapest region of the island. In short, as the buying option becomes less affordable for a growing number of lower to middle income people, the lat- ter category will have no choice but to rent. The question remains, "Who will pro- vide such people with rental property which they can afford?" Who will build 'affordable' housing? Rental White Paper