By Louis C. Montegriffo, Managing Director,
BMI Group
“Now, one thing I tell everyone is learn about real estate. Repeat after me: real estate provides the highest returns, the greatest values and the least risk.”
Armstrong Williams
I haven’t got a clue who Armstrong Williams is, but I like his style. Although the quote does come across as a little arrogant, aggressive and somewhat misleading …(wow, this guy’s an estate agent), the fact is that Mr Williams is actually right, on the basis, of course, that you look at long term forecasts and with the exception of Spain or Ireland (sorry that was a low blow). Seriously though, the guy is spot on and history proves this.
After having ended 2013 on somewhat of a high with what turned out to be a good year for Gibraltar, with particular emphasis on high value sales, we were somewhat apprehensive about 2014. I guess this happens to the best of us and I’m sure I’ll be forgiven for thinking how one can top what was already a great year end. Although we are only in month four of 2014 as I write this, it is fair to say that 2014 has started much as 2013 ended and yes it’s the high value market that is once again showing off……or rather showing confidence.
I recently had dinner with some bankers on a fact finding mission to Gibraltar, it was interesting to hear their perspective on the Gibraltar market and learn, that by comparison to most other areas that they had responsibility for, Gibraltar really was in a league of its own when it came to the market conditions and the prospect for further growth – interestingly it was their surprise that existing mortgage books are in such great shape with no repossessions recorded for some years – something I have commented on before and which I feel is testament to the confidence across the board in the property sector.
So enough with the optimism, lets look at the facts, (see graph below) which outlines the average house price with and without exceptionally “high value” properties.
The data in our view, although positive, is also somewhat alarming given that the average house price (when including high value props) is upwards of £600,000. I’ve been involved in property for over 15 years and I have never seen the sort of spike in the market that 2013 has delivered. The graph shows a similar trend between 2006/7, with the exception that the market then was driven mainly by speculatively driven sales which subsequently led to the dip in 2008 due to oversupply and the impact of the global crisis which clearly affected confidence. What is key in our view of today’s market is that the price hike is not driven by speculation but by real demand.
Outlook & market info
The current climate continues to be positive and likely to improve further. For three years (since 2011) we have witnessed the market harden up and prices slowly improve, 2013 underpinned this further with a marked increase in “high value” sales. Demand has continued in line with the growth in the economy and we have seen property prices (particularly in the high value market) over the past three years increase by up to 40% in some areas, but averaging out at approx. 20%.
We indicated last year that we were seeing signals similar to those experienced in 1999 – 2000 when Gibraltar first began it’s boom period and which was driven by the advent of the growth in the gaming sector in which the lettings market was left with little or no stock and became the prelude to the hike in prices over the period between 2002 – 2006. It would be fair to say that this was very much the case in 2012/13 and as mentioned we are hugely encouraged by the fact that there is little speculation in the market unlike 2006/7, thereby resulting in a strong owner occupier lead property sector.
Key factors of note
l The sales volume in 2011/2012 saw substantial increases from previous years of up to 20% and 35% respectively. 2012/13 has seen a 10% increase.
l Volume of sales in the top end of the market increased notably during 2012 with 2013 seeing further growth in this sector of the market
l With no high volume forecasted ‘New Developments’ in the pipeline, the market is likely to harden further.
Key related economic factors
l There continue to be NO bank repossessions
l Unemployment remains relatively low
l Finance centre industry is growing from within and continues to target further international investment
From Gibraltar’s perspective it’s a
positive outlook. I do hope that you have found this article of interest and I look
forward to updating you in the future.