Exploring financing options for small-scale property developers in Malta

Abstract

Property developers require both working capital and other means of financing for their development projects. Research shows that property development SMEs face the most substantial challenges when seeking bank financing. A combination of factors such as strict bank lending policies, reduced exposure in the real estate industry by banks, and inaccessibility to the capital market have forced small-scale property development SMEs to opt for internal financing to meet their requirements.

Since limited studies have been conducted on this topic in the Maltese real estate market, this study aims to fill this gap by addressing the challenges faced by property developers and by exploring the various financing options available locally. This study also highlights the preferred financing sources of local firms and outlines the pros and cons of the various financing sources. The qualitative approach adopted for this study was carried out in a series of semi-structured interviews with four Maltese property developers, three major banks in Malta and representatives from the Malta Stock Exchange.

Findings of this study, in line with the literature, revealed that bank lending has become more stringent and access to the capital market by SMEs is not always feasible. The researcher found that small-scale developers in Malta prefer internal financing and frequently utilize funds from prospective buyers to finance their projects. From these findings, it was also determined that alternative sources like crowd funding and capital markets may be more sustainable and viable options to finance property development in the future. However, at this stage, these sources are not well known or widely utilized by property developers in Malta.