In my opinion: Property sector remains resilient despite challenges

By Louis Montegriffo

Firstly, a Happy New Year to all.

The news of yet further lockdowns is not something that one would have wished for in their New Year’s wish list, but we hope and expect that we are certainly at the end of the last curve on this winding road.

Having said the above, the end of 2020 did bring with it some good news in the shape of the “New Year’s Agreement” with Spain and the UK, delivering a degree of certainty for Gibraltar’s political and economic status, something which, since 2016 we have lacked.

We have over the past decade provided regular appraisals on our thoughts and forecasts on the property market. Since 2017 we have highlighted our concerns with the high volume of speculative developments steered by a “studio” segment delivering hundreds of these units to the market. We have also expressed our bullishness in the market on “owner occupier” properties within the mid to high end tiers of the market and the demand for these properties.

This demand has in part, been steered by an expectation of a positive outcome with regard to Brexit, as well as real growth in the market driven by applicants seeking larger homes, in their quest to base themselves in a safe, English speaking, regulated, low tax environment. We seem to be cementing this attractive proposition toward the “ultimate residency” further.

As to the impact of forming part of the Schengen group may have on the property sector in Gibraltar, clearly the prospect of free movement with Spain under a safe political arena not seen in over three hundred years is an attractive and positive proposition, not least with a continued and underpinned financial services relationship with the UK; the future seems bright and we welcome the agreement.

We will as always review and comment on the impact of this agreement, it clearly promises to deliver a bright future for Gibraltar with a degree of political security and economic stability not seen before.

What the future now holds is yet unknown, but a great deal of what we may expect can be forecasted based on our market performance so far and over the years we have produced various market updates, sharing our views and thoughts on the market. The following update was composed during the last few weeks of 2020.

Given the past 12 months, if I could ask that we all for the love of God focus together, that would be great!!

There is little one can say to try and sum up the happenings of the past year, let alone that of the past 4 years. Just when we thought that there could be nothing worse than the antics of Brexit (which by the way are now at a crunch – in case you missed it), we are given the joys of Covid-19.

Without wanting to make jest out of what has been the biggest health crisis in entire
generations - is it ok to say……. “for the love of God, someone please make it stop”!

Thankfully, we seem to be reaching the light on both fronts and I am not sure that the globe, in general, is quite ready for any more surprises, I think we have had our fair share of these.

For several years since 2016 and since the emergence of Brexit we have kept a watchful eye on the property market (as we do) and analysed, as best we can, the impact of Brexit talks and negotiations on our property values and the confidence in general terms for our economy.

Given the calamities we have witnessed globally, at a political level (and for the record I miss The Donald), an economic level (and we ain’t seen the beginning of this in Europe in light of Covid), not to mention the mess we find ourselves in from a socio-economic perspective, you would not be blamed for just battening down the hatches, possibly buying a fishing boat and calling it a day…… but as a client of ours put it recently: “When the world is in crisis, Gibraltar excels.”

A bullish comment, but so accurate when it comes to the experience, we have had over the past 4 years and ironically enough over the past 10 months since March 2020. There is no question (and regardless of my banter), that we are and have been so incredibly fortunate, but to a larger degree so well placed and structured to have (in the main) done so well – and I am of course primarily referring to the property sector.

Against all the odds, we have seen price increases and sales volumes take a sharp rise throughout 2020 and as mentioned on so many occasions in previous updates, it has been the owner occupier markets, largely two-, three- and four-bedroom properties in mid to high end developments showing some truly spectacular gains with some increases in excess of 10%.

The higher end and fourth tier in the market generally with price ranges upwards of £1,500,000 has also re-emerged with strong activity in this sector and sales in areas such as The Sanctuary (circa £6m), Buena Vista Park (average of £2.2m), Admirals Place and other.

Interestingly we have also been party to the sale of a two-bedroom apartment at Ragged Staff Wharf at £815,000 and four bedrooms in Quay 29 / 31 at upwards of £1m and delivering rates per sqm reaching £7,000 and beyond.

Without insight into circumstances surrounding us and an understanding of the dynamics of Gibraltar, the numbers are non-sensical and you may choose to take the view that this estate agent is quite frankly taking you for a ride.

Our view of the why’s and the how’s is best described in the extract below which we wrote some time ago: “Whereas one couldn’t have been blamed for being cautious with any expectations (and still can’t), there seemed to be a driving force of interest and investment in Gibraltar, underpinned primarily by our Finance Centre, our strength in regulating our financial services, and importantly, the fact that we speak English and are subject to British law.

I have referred to these attributes on many occasions in the past, and I will not tire in re-stating that the value of these factors is huge and will, in our view, continue to be the firm basis of our success in the future.”

Our views over the years maintain a trend: growth in owner occupier driven markets steered by a continuously growing gaming and finance centre, with stability and security adding further value.

Whereas we have been pleasantly surprised with the growth in a large part of the property sector, we also continue to remain cautious and to a large degree negative on the studio market sector.

We took a view to stay out of this segment several years ago due to the high volume of proposed developments exclusively aimed at this product.

We struggled with the prices being pitched and the marriage to an identifiable end user. It appears that to date it is the only sector that in general terms has not enjoyed the growth in capital appreciation attained by much of the market.

We hope that with this recent write up we can give a small and educated snapshot of the market where we see the upsides, as well as the downsides.

The market and the economy remain difficult to forecast, but if the year gone by (2020) and the time since the Brexit referendum is anything to go by, we have done swimmingly and held our own immensely well.

2021 will no doubt bring its challenges, but we hope that our ability to overcome this truly exceptional year will stand us in good stead to continue with our ever-growing economy and with it our property sector too.

As I write this, we have just closed a sale that has reached the £7,000/sqm mark, we
have achieved this level on more than several occasions now, we have indeed reached a new level that we believe is here to stay. As a great man once said – “it always seems impossible until it’s done”.

Louis Montegriffo is the managing director of Gibraltar-based estate agents BMI Group.