3,000 home property boom targets local families and cross-border workforce
After several years of pent-up demand from a growing workforce and increasingly affluent population, Ray Spencer, in this first of a two-part Gibraltar property report, considers whether current house building levels may risk oversupply
Private and public sector projects costing some £750m are set to provide almost 3,000 residential units over the next three years, amidst the jurisdiction’s second property boom this Century, according to research by Gibraltar International.
Geographically Gibraltar’s housing market is closest to Spain whilst economically it is closest to the UK. Both of those markets have faced ‘boom and bust’ since the Millennium – but Gibraltar has not.
The 20-years old estate agency BMI, estimates there are only around 150-170 properties for sale (before new builds come on stream), compared with 250 usually. “That is a normal level given the size of the market; any more available above that has previously resulted in downward price adjustments.”
There are few properties to rent – “rental prices have risen quite sharply driven by an expanding financial services and e-Gaming sector”, says BMI director Louis Montegriffo. Last year a firm moved to Gibraltar with 35 families needing 2-4 bedroom properties “and we saw rents rise in a very short space of time, he notes. “ Whereas a couple of years ago for example, you could rent a 2-bed Kings Wharf apartment for £2,400pm, today it is up to £3,300.”
This year, three large private sector projects will be completed to add 300+ housing units, primarily in rentals as buy-to-let investors look to generate a return, but also in re-sales either from speculators cashing in, or investors keen to move onto other projects. A minimum price uplift of 10% is common; sometimes it is as much as 40%.
Financing of Gibraltar’s open-market projects are characterised by developers fronting around 20% of the cost (mostly land), off-plan investors with 25-30% deposits, and banks providing 50% – but only when most planned units have been sold. “That formula ensures projects will be built out, unlike in the UK where deposits are generally 10%, so purchasers are more likely to walk away if the market turns”, suggests Mike Nichols, Chestertons’ local managing director and development consultant.
Investors are typically achieving yields of 5.5-6.25% gross in the core buy-to-let market – but less for £1m+ properties – and costs of ownership and letting fees reduce the yield by about 1%. Capital growth for the last ten years is 2%–5%pa.
“How property prices move over the next few years is completely outside of an investor’s control, with most being local
residents having knowledge of Gibraltar’s property market and economy, and only few as pure speculators. I see it as a cycle – if you don’t have investors, you don’t have construction,” Nichols adds.
Some developers prohibit re-sales of off-plan contracts until all units are sold or until building completion, but delays are a feature of many projects. Almost all Gibraltar properties are leasehold and new developments have 125+ year leases with the UK Crown as ultimate owner.
“There is a shortage of homes for sale and a chronic shortage of rental properties for the army of over 12,000 workers – half being non-Spanish – who traipse across the border each day, many of whom would much rather live in Gibraltar if the right property at the right price was available,” Nichols observes.
New to the scene are several developments that feature a heavy content of “affordable” hotel-size studio rooms and small 1-bed apartments, upwards of 840 coming on stream in the next 2-3 years.
At The Hub, close to the airport runway, two years’ of work will start this summer on a 15-storey block of 143 studios measuring from 24 m2, each with pull down bed and sharing TV and games rooms and laundry facilities. “Where else can you buy apartments at an average price of £128,000 and then be able to rent them at £650-700 a month?” Nicholls asks.
Developer Tylee Properties, wants to attract first time buyers, divorcees, returning students and non-locals who have moved to the Rock for employment – “a stepping stone for young and old who struggle to get on the property ladder and can’t get on the housing list”.
Eurocity is an £80m development of 366 apartments in three blocks, where building is scheduled to begin this summer; almost four in five of the units are studios (176) or 1-bedroom (112), and 64 being 2-bedroom. All units in the first block were sold pre-launch, and now the second block, a 22-storey tower set to become Gibraltar’s highest, 143 units are being offered at prices from £165,000.
The entire mixed-use project, which also has two floors each of retail and offices, was the brainchild of Russian developer Evgeny Cherepakhov, chairman of local family business Bentley Investments Group, who was encouraged by demand in 2015 for his adjacent West One 11-storey high block of 96 apartments that has just been completed.
“We are seeing a great deal of new build taking the serviced apartment route with very small properties; the smaller they are, the higher sale cost per square metre. The risk with this is the exposure to the speculator’s market that this type of build invariably attracts,” Montegriffo declares.
“We have some concerns over the real owner occupier / rental demand for 25-45sqm properties, and when there are potentially 500+ of them being proposed. It is a segment of the market where we urge caution; it’s a fine balance and there could be overbuild in this segment with a negative impact on the market,” he submits.
Ocean Village (OV) developer, Greg Butcher kick-started a 5-year building boom in 2004 by quickly selling off-plan the 16-storey Royal Ocean Plaza, which opened in early 2010. But in 2009 when bank finance dried up, so did building projects.
In 2014 OV again took the lead by launching Imperial Ocean Plaza (IOP), selling 116 apartments in a week, and followed that with two 16-storey blocks and one at 17-storeys providing a further 315 apartments. Two more towers are being constructed – Ocean Spa Plaza and the delayed IOP – adding 241 apartments – to make five large blocks at OV.
Yet another Gibraltar ‘first’ is planned at OV: five 3-storey blocks of 144 waterfront apartments that buyers cannot occupy for 15 years! It is believed two blocks have been presold to local gaming companies. Marina Club’s rental-only studio, 1 & 2-bed properties are to cost from £195,000.
Midtown’s 8-15-storey development of seven interlinked blocks over 4.3 acres is the largest currently and will provide 120 apartments, 7 penthouses and 18,000 m2 of offices by mid-2020. A 1,000-space car park is complete and four of five housing blocks will be available this year having sold
high-end and comparatively large units at £400,000 to £2m for a penthouse.
The 2012 Census showed Gibraltar had circa 10,000 residential properties for a population of 32,000; 40% at that time were government rented homes, and only 1,700 were privately rented. Some 4,300 (37%) were owner-occupied flats and 10% government co-ownership. The government 50:50 shared ownership scheme was boosted in 2016 when two estates with 900+ apartments were built at Beach View Terraces and Mons Calpe Mews at a reported £116m cost.
“The greatest demand is for 3-bedroom affordable flats – few want 1-bed units”, says Samantha Sacramento, housing minister, who received close to 4,000 scheme applications. Three-bed flats sold for £102,600-144,350 and buyers acquired a 50% stake or more, dependent on individuals’ affordability. “These are very good prices. The government builds to cover the cost, but not at a loss”, she notes. “We are not making a profit, whereas a commercial developer will want to do so.”
Now over 1,400 more “affordable” social homes on three estates are promised for Gibraltar residents “from August 2019 until the end of 2021”. Non-Gibraltarians can only buy after 10-years’ residency!
There are “other strategies” for frontier workers, “because we recognise that there are a lot of people, working in key industries, who want to live in Gibraltar and they are not family people”. Government is encouraging developers to provide 1-bed accommodation. “When plots go to tender, people offer different ideas, and the allocation panel will want to maximise government policy”, Sacramento insists.
Mortgage availability is not a problem. State-owned Gibraltar International Bank chief executive, Lawrence Podesta, explains: “We have lent some £170m for mortgages and we can take on quite a bit more as our deposit base of over £700m is greater than expected, which means we have enough to lend another £22-30m for the Government properties and substantially more in the open homes market, subject to a tiered approach on risk levels and 50% concentration limit in any single development project.”
Christian Bjørløw, Jyskje Bank chief executive, concurs: “Availability of home loans is not an issue. Demand for mortgages last year was quite slow, but we have seen a slightly higher demand this year.” Jyske bank had helped to finance a few large developments.
NatWest reports Gibraltar mortgage demand in line with last year, but adds: “We have financed a number of developments over the last year, which will bring more properties onto the market and future mortgages. There is still likely to be demand from developers for commercial projects, but on a smaller scale.”
Lawrence Isola, chief executive of Europort Developments remarks: “I have some concerns about the amount of construction going on, never mind the high number of planning applications for more going in. When this big round of building is completed, a large number of apartments will be available for rent or for re-sale with a high number of speculative investors seeking to get a return, because people think everything sells well in Gibraltar.”
Kings Wharf is a bayside development of three blocks: the first, Quay 27, delivered 130 units in 2011. At Quay 29, where 120 apartments are expected to be ready in March next year, “up to 80% are owner occupiers”, Isola asserts. In Quay 31, almost all 83 apartments priced between £350,000 and £1m were sold late in 2017 “to a list of clients known to be looking for a home to live in and not off-plan speculators”.
Residents are showing concern at the number and height of new blocks being squeezed in – 33 more by 2021 – and
protestors claim a detrimental effect on Gibraltar’s skyline, loss of light and, of course, views.
Yet still more development is envisaged, in addition to several smaller projects of 15+ apartments. The biggest in prospect is the long-awaited Eastside “Bluewater” development on reclaimed land that UK-based Cameron Developments was to pay the government £86m in 2015 to build £1bn-worth of high-end apartments, retail and office space, a marina and 1,100 government affordable homes.
In November, Chief Minister Fabian Picardo, told Parliament Brexit uncertainty had “stalled” progress, but eastside presented “a property lung” and “an opportunity for further expansion and development”. He added: “There is a possibility that the plot might grow further… for a larger development!”
OV’s Butcher plans to build circa 100 more apartments at The Reserve on the side of the Rock where there was once a casino, but four years of site difficulty has frustrated progress. And developer Hepta expects to create a 15-storey high building for up to 77 apartments, 12 duplex penthouses, plus office and retail space at Devil’s Tongue, Queensway. There’s talk too of further land reclamation with a mini eco-city at Coaling Island on Gibraltar’s west side, and 3 – 4 more housing projects near the airport.
The top end of the market remains slow. A UK developer launched The Sanctuary – five luxury villas of up to 1,400m2 with 5-6 beds in a gated community high on the Rock – priced at £8.5–10m. Completed late last year, one has sold so far.
At £10.9m, the most expensive property remains an open plan 4-storey villa, New Aloes – 2014 winner of ‘Best International Property Single Unit’ – built for OV’s Greg Butcher with 7-bedrooms, 865m2 internal space, and garaging for 10 cars!
However, Montegriffo claims: “We are seeing a lot of high value clients coming into Gibraltar. People are demanding high quality, so Gibraltar is maturing; we have also seen buyers wanting larger spaces, more
sophisticated fitting out, better and more amenities.”
The estate agent perceives: “High income people see Gibraltar as something new. Whereas we sometimes ask ‘when is it going to end, when are we going to see an adjustment that goes down rather than consistent growth’, people from overseas suggest we are only just beginning – they can see the margin here.
“A Hong Kong investor suggested our property market could at least double in value in the next 6-10 years. When I checked, between 2000 and 2006 the market pretty much tripled in value. We might think ‘never again’; others see the potential.”In January, the web portal www.Propertygibraltar.com reported: “Without a doubt, the cranes and the constant change in the view of Gibraltar’s skyline signify opportunities as well as building activity and point to prosperity.”