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Wanted: affordable properties - Denis Camilleri

The report titled ‘Crisis in housing, rental markets’ (May 17) referred to a minimum rental period and the mandatory registration of rental contracts. The free rental market should prevail.

The minimum rental period will not be required in the case of short leases, such as for educational purposes, vacations and such things.

The minimum rental period is desired both by tenants and a category of owners. This rental period will provide security to both sectors. Households that opt to rent can plan for the long term, while owners are provided with security of income for a given time.

When a rented property is vacated abruptly on the commencement of a lease, the owner faces a loss of income due to the vacant period, together with maintenance and redecoration costs, necessary to secure a new lease agreement.

To achieve some security of tenure, as households and owners expect, the minimum rental period is considered to stand at three years, a standard adopted in various European countries. On the expiration of this period, the lease can be extended according to a mechanism to be set up.

The mechanism will require a rental property residential index, covering the rental amount over a period of time to keep in synch with the prevailing rental market of the time.

The emphyteutical residential grants as per the 1979 legislation, pegged to the inflation index, are considered today to have failed dismally. The lessees nowadays are paying the equivalent of a monthly rent for a year’s tenure.

Following the 2009 rental update legislation, a free rental market now exists, hence a rental property residential index can be built upon.

The importance of this rental index for the proper functioning of the minimum rental period may be gauged from the non-existence of a commercial rental index, as requested by the same 2009 legislation, creating uncertainty.

Rental amounts since 2014 have increased by 150 per cent, pushing out many households from their current leases

Further to the above, rental amounts since 2014 have increased by 150 per cent, pushing out many households from their current leases. Simon Debono, for the Federation of Estate Agents, further compounded the affordability issue, arguing the median price of an entry-level apartment in excess of €200,000 is beyond the means of the first-time buyer.

Due to the rental hike over the same period, residential property prices have increased by 50 per cent, with unsustainable increases occurring however as from 2016, noting a two-year delay as compared with the rental market.

The provision of affordable properties has now become a must for households that cannot afford the rental or buyers’ market. This is due to the recent increases noted in both sectors.

This affordable market is being considered separately from the social market, whereby 1,000 units plus are to be provided in the coming years. These are noted to be the first new residential social units to be provided after a 10-year delay.

Presently, a deficit exists for these types of units, further compounded by sales having been undertaken under the various right-to-buy schemes. In the social market, unlike the affordable market, households may be considered unable to effect any, or even peppercorn, rental payments.

Structures must be in place whereby construction, followed by the routine maintenance of affordable residences, can be undertaken to provide for adequate sustainable housing. Affordable housing may prevail where land is obtained at a subsidised rate and the return on investment is via construction costs. A long-term housing figure hovers around the four per cent mark, with the return on the costs involved recouped via the subsidised rentals.

Affordable housing has to be supplied, whereby newly built or upgraded vacant, derelict properties are leased at rents being a proportion of the prevailing free rental market. This proportion may be considered to lie within a band of 30 to 60 per cent of the free rental market.

The lower end may be considered in the outlying villages, such that residents are encouraged to continue living in their surroundings, and the higher percentages will apply to tourist areas, where the quality of life is improved if householders live close to their work environment.

This works out because the subsidised land cost in tourist areas is considered to be lower than for other localities.

Denis Camilleri is an architect and valuer who has followed the workings of the local property market for 36 years.

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