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01 Mar 15

2014 A Good year or Bad? Where to next?

2014 A Good year or Bad? Where to next?

2014 A Good year or Bad? Where to next?


And so another year goes by, I hate to state the obvious, but time does indeed fly by. I recall writing our update article only 12 months ago with an element of trepidation given the successful year that we had enjoyed throughout 2013. It’s always unnerving entering a new year with high expectations based on successes in the previous 12 months…..in short, one wonders whether the bar can be set higher.

Well as stated in last year 2014 began with flying start and our expectations were being met; it’s safe to say that 2014 did not disappoint and the ever increasing confidence in the market with prices to suit were here to stay.

I write this article somewhat later than I had intended (apologies, one needs to nurse the New Year’s hangover….serious hangover I hear you say). In all honesty a little laziness combined with a busy start to the year has also played it’s part in getting this issue out, but I guess the main reason was……. what I was going to write about? 

After 10 years of no doubt boring the socks out of you, one can (I’m sure you’ll understand) get pretty tired of coming up with WoW adjectives, statistics, quotes, and all sorts of fantabulous phrases to explain how fecking great the market is and why you should invest in property……….after thinking hard about what to pen out this time round, it came to me – I figured that I’d dazzle you with adjectives, statistics, quotes, all sorts of fantabulous phrases and a graph. 

So there you go people, that’s my intro for you, I really wish that I  could tell you something different and throw caution out there, express concerns etc, but I just can’t, it’s simply not the case. I hope that regardless of the above banter, you will accept our opinions below as honest and sensible guidance, advice and general information. We have never shied away from bad news and you will recall our concerns back in 2008/9, most of which, I might add, we pretty much nailed.

I leave you with our review / update of the year gone by and why we think that there’s enough out there to be positive about.


Outlook & Market update for year end 2014:

In brief: 2014 has as suspected proved to be a good year with the market showing no signs of slowing down. Stock levels remain low both on rentals and sales and this remains one of the drivers for an increase in prices across the board. 

Residential:

It was always going to be unrealistic to expect property values to rise as sharply as they had (on the top end – red line) during 12’/13’ but as shown on our graph above, the top end has maintained its strength albeit it a sensible pace. We believe that high value sales are here to stay and that a new market, a fourth tier, has made its mark. The market at this level (by our estimations) has increased marginally by approx. 5%. 

If one excludes high value sales (green line) you will note that the pace and strength has been sharper and more consistent with the previous year; we believe that this is principally due to higher volumes of sales at this range, and at this level we have seen an approx. increase of just under 10%.

Commercial:

2014 has seen the beginnings of ambitious proposals by various developers to push ahead in the construction of approx. 30,000sqm of office space. These developments are scheduled to begin works in early 2015 with 18 – 30 month programmes. The past few years have seen large increases in rates/sqm which only 5 years ago averaged out at £230/sqm / annum and are now at an average of 290/sqm / annum and highs of up to £400/sqm / annum.

Demand has clearly increased with the additional pressure of there being no new build in this sector for quite some time. Our views on whether there is real demand to meet the forecasted sqm being proposed are met with an element of caution given the substantial schemes in the pipeline. We are optimistic on smaller projects able to provide mixed use schemes and easier to meet market expectations.

New Developments:

2014 saw the launch of Midtown and Ocean Village Phase 3. In brief both developments pretty much sold out in no time. Although one would be tempted to mark this as a huge success on the part of the developers, we will (and here’s the cautious advice for you) keep a watchful eye on where the demand for these units has originated from and who the buyers are. We have always maintained that a mix of owner occupiers, seasoned investors and a small measure of speculators is healthy, any overdose of the latter and you become exposed – to learn more about our thoughts on this, please feel free to call

Economy:

Although we prefer to refrain from commenting on economic activity, we have found it useful to make reference to the GDP figures (blue dotted line) in order to indicate economic strength or weakness, which is a main driver in property values – 2014 speaks for itself with a projected growth of +10%. We will review the impact that such a strong growth may or may not have on the market at year end, but it would be fair to say that the first 2 months of 2015 have been encouraging.

The current climate in our view continues to be positive and likely to grow sensibly. For four years (since 2011) we have witnessed the market harden up and prices rise, 2013 underpinned this further with a marked increase in “high value” sales which as seen in the graph marks the beginning of the fourth tier sector in the market.  

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 four years increase by up to 40% in some areas.

We indicated in 2013 that we were seeing signals similar to those experienced in 1999 – 2000 when Gibraltar first began it’s boom period, 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. This has certainly been the case and we are delighted with the results, but we would add that there is also a greater confidence in Gibraltar 15 years on; the quality of our business has increased, high value applicants are looking no further than Gibraltar as their choice for relocation and our applicants and clients are better briefed about the Rock and its potential.

There is no question that the positive message that we bring is, to a great degree, thanks to the efforts of the Finance Centre and the fact that the Rock delivers a first class, dynamic and well regulated centre that attracts quality applicants across a wide spectrum of services.

Key factors of note:

• Our lettings portfolio today stands at an average of 9 units from an all time high of 40 units 5 years ago.

• Our sales portfolio is at an average of 100 units for sale from an all time high of 240 units 5 years ago.

• Our sales volume in 2011 / 2012 saw substantial increases from previous years of up to 20% and 35% respectively. 2013/14 has seen a 5% increase. (Not including off-plan sales)

• 2014 has equalled performance results of 2013 making it the company’s best year since we began trading in 1998.

• High Value market sales are here to stay long term underpinning the top end of the market and the confidence from applicants in this sector.

• New Developments (residential) launched in 2014 amount to approx. 200 units (not including Govt housing schemes) with forecasted completions of 2018 – 2019.

• GDP growth (forecasted figure) for 2014 is +10%

Key related economic factors:

• There continue to be NO bank repossessions.

• Unemployment remains below 2%.

• Finance centre industry is growing from within.

• Gibraltar remains the only highly regulated, low tax, English speaking centre in Europe.

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