Thunder struck the island. HSBC, at least momentarily, doubled the down payment required for a mortgage from 10% of the property value to 20%. That’s for a first home. For a second home, buyers now need to fork out 25% of the total property cost compared to 15%. HSBC also increased interest rates from 2.7% to 3.1%.
HSBC’s drastic changes strike at the heart of what the Malta Developers Association proudly calls the backbone of the economy – the construction industry. Malta’s property bubble was already looking shaky. 2022 saw a staggering 3,500 fewer promise of sale agreements compared to 2021. The greedy titans of that industry – Joseph Portelli, Michael Stivala, Charles Polidano ic-Caqnu, Bonnici Brothers – must have been quaking in their boots. Their magnificent empire was facing an almighty earthquake.
They must have been nagging at the Prime Minister. Soon enough Robert Abela was publicly denouncing HSBC.
“Buyers looking for a loan have other alternatives,” Abela declared at his press conference. He was announcing details of a 10,000 cash grant to first-time buyers, really intended to boost the profits of his developer friends. Abela was publicly chastising HSBC. And warning other banks not to follow suit, saying, “I appeal to other banks to refrain from doing what HSBC has done”.
For the prime minister to publicly pressure banks on how to run their business means only one thing – he’s desperate. He knows that doubling the down payment for a mortgage and raising interest rates will decimate demand. That will explode the property bubble. It would wreck Malta’s economy. And would dry up the rivers of profit that currently flow to Labour’s backers – the mega developers.
That would be an existential threat to Labour and its stranglehold on power – which is why Robert Abela wasted not a minute in mounting his assault on HSBC.
HSBC is one of the world’s largest banking and financial services organisations, serving 40 million customers. It is the eighth-largest bank in the world and holds $2.96 trillion in assets. There is a good reason why it’s raising interest rates. It would not have doubled down payments for mortgages on a whim. HSBC has done so because it senses a storm approaching Malta’s property market. It wants to reduce its exposure when that storm hits.
The Bank of England has raised interest rates for the tenth time in a row. Its benchmark rate is now 3.5% to 4%. The US Federal Reserve raised its lending rate to a 15-year high – from 3.75% to 4%, and its chairman Jerome Powell warned that rates are likely to move up again. The European Central Bank raised its interest rate to 2.5% and is widely expected to raise it further to 3% in March. Local banks will have to raise their rates too. Getting a loan will become even more costly. Fewer and fewer people will be able to afford one. Demand for the massively oversupplied market will crash.
Making matters worse, Malta faces increasing pressures to terminate its golden passport scheme. Portugal has just ended its scheme. So has Ireland. So has Cyprus. Fewer rich foreigners mean fewer property sales.
Just days earlier three local economists warned that there is a real risk that Malta’s property bubble may burst. They highlighted three key factors that will burst that bubble – rising interest rates, less foreigners purchasing property, and property prices rising way faster than earnings. The price of property in Malta has doubled since 2013. Wages have increased by just 30%
HSBC can see that all three of those factors approaching and it is acting to protect its interests. Robert Abela can see it too – which is why he’s panicking. And trying to influence decisions taken by the banks.
Abela’s amazing power forced HSBC to issue a company statement. They backtracked on their 20% down payment, pulling it back to 10% for first time buyers. HSBC Malta’s CEO even claimed it was just a mistake. But their original statement insisted that the bank will continue to “align its risk appetite and credit criteria”. The increase in interest rate from 2.7% to 3.1% was retained. And those purchasing a second home will still need to fork out 25% of the total value instead of 15%. HSBC will still batten down the hatches. Other banks will be constrained to ignore Abela and follow suit as international lending rates rise. APS bank has just warned that interest rates may go up. Even Abela can’t stem the tide.
That is bad news for first-time buyers. It’s bad news for the MDA and Labour’s development kings. It’s bad news for Labour. But it’s even worse news for all of us. We know that Labour will protect its friends, the developers, before it protects citizens.
Abela’s immediate public shaming of HSBC is in stark contrast with his long months of dallying before publishing the Miriam Pace inquiry report. It’s completely different from his slothful reaction to Jean Paul Sofia’s death and his appeals to let the institutions work in serenity.
The banks are institutions too but Abela has no qualms pressuring them to ignore all the market’s warning signs.
We all know why Abela springs into action in some circumstances but crawls up into a ball in others. He’s swiftly galvanised into action when his friends’ and business partners’ interests are at risk – because his own interests are intertwined with theirs. He returns to his stuporous state when people’s lives are brutally ended by his developers’ machismo.
Abela brazenly appointed Joseph Portelli’s architect, Maria Schembri Grima, to head the industry’s regulator – the Building and Construction Authority. With his backing, Schembri Grima felt untouchable. She was the architect responsible for the dangerous demolition job on Psaila Street when bricks and concrete rained down onto the road. Her disregard for public safety was complete. She’s now been forced to resign. She now faces a disciplinary probe by the Chamber of Architects.
That sums up Abela. He knows appointing Portelli’s architect to head the BCA was wrong and reckless. But his top priority is shamelessly aiding his business partners and the mega-developers who fund his party. The nation’s interests can wait.