Money laundering fuels property boom

James Debono

A dramatic increase in the number of apartments, accompanied by skyrocketing prices, has confirmed claims by economist Edward Scicluna that black money is being washed in the Maltese property market.
The number of housing units constructed increased by 35% in 2005, from 6,700 to 9,000, and despite the increase, prices skyrocketed by 40% since 2003 for apartments, and by 35% for two-bedroom maisonettes.
The figures, featured in the Building Consultative Council’s annual report, also revealed that the number of apartments had jumped from 5,265 in 2004 to 7,539 in 2005 – an increase of 43 per cent.

Overall, the increase of over 2,300 units in just one year is comparable to the gradual increase between 2000 and 2004 of 2,500 units.

Edward Scicluna told MaltaToday the property inflationary explosion was like “a fire”.
“One might disagree with what actually started it, but definitely it will only persist if it is generously fuelled. In the economy that fuel is always excess money. In the present context what is fuelling the present property inflationary spiral is the excess liquidity of Maltese currency in circulation seeking back-door conversion into Euro.”

Scicluna had already warned in October that as the date for the euro changeover approaches, more people will channel their undeclared monies into legitimate activities like property development.
“These monies are now fuelling the current inflationary pressures, blowing up further the property bubble and encouraging property speculation, with its needless environmental damage and destruction of our towns and village cores, and leading to downward pressures on the Maltese Lira.”

Data compiled by Scicluna shows that Malta has the highest amount of money in circulation per capita among the 12 new EU member states – an astounding EUR2,912 (Lm1,250) per person.

Since 1999, the amount of money in circulation has increased at an average rate of Lm17 million per annum, despite a period of economic sluggishness during the same period.

But since last year Malta registered a first ever decrease of about Lm10 million. Scicluna estimates that this break in trend indicates that about Lm30 million have already been withdrawn.

Those who are hiding their money “under the mattress”, will surely not be taking cash to financial institutions to exchange it for euros. By law, credit institutions are obliged to enquire on “the provenance of any amount of any sum in excess of Lm5,000”. Banks are also obliged to enquire on the origins of series of structured transactions below Lm5,000.

Social cost
Most of the development occurring in 2005 has taken place in already developed residential areas. The conversion and redevelopment of old buildings resulted in an increase of 4,577 new units in 2005 compared to just 645 units created in 2001.

While alleviating some of the pressures on the countryside, the intensification of construction in already built-up areas is creating havoc in village cores for residents living in once tranquil residential areas.
Environment Minister George Pullicino has already announced plans to ‘discipline’ developers with the introduction of new construction regulations. Flimkien ghal Ambjent Ahjar, the environmental lobby, welcomed Pullicino’s declaration.

“If carried through, this will be a move in the right direction and a relief for many citizens, as the exaggerated and uncontrolled development taking place in many parts of the islands is subjecting the Maltese public to incessant noise, dust and dirt, much of which could be avoided by investment in equipment which has now become available,” the FAA said in a statement issued on Tuesday.

But according to the FAA much of the new development is not necessary and damaging Malta’s image, heritage and public health. It urged government to implement programmes to encourage the restoration of treasured old buildings and the reform of outdated rent laws.

http://www.maltatoday.com.mt/2006/12/17/t1.html