Gibraltar’s residential property market remains in good health, so says chartered accountant Mike Nicholls, managing director of Chesterton in Gibraltar. Here he explains the key dynamics of a small but thriving property market.

Gibraltar’s property market is predominantly tax driven. That’s why, as a chartered accountant, I spend as much of my time on property as I do on tax. It’s because they are intrinsically linked. Companies and high net worth individuals continue to relocate to Gibraltar slowly but surely. And with companies, come employees, across the entire wage spectrum.

Why buy in Gibraltar?

Gibraltar is an onshore EU economy, compliant with the Organisation for Co-operation and Economic Development (OECD) regulations and International Monetary Fund (IMF) standards. It is this credibility, and low tax rates, that attract new entrants: both individuals and companies. To become tax resident, one needs to rent or buy a property.

But it isn’t just tax. The schools are good, the health system functions well, the history is fascinating and the natural environment, whether the nature reserve at the top of the Rock, or the surrounding marine life, provides a huge choice of activities and past times. Furthermore, the climate, English language, familiar shops, trusted legal system and ease with which one can access the major European destinations all add to its attraction. Perhaps most striking though is the friendliness of its inhabitants. People of all religions and of all levels of wealth live quite harmoniously together, side by side, with very few cracks in the community infrastructure. From that point of view, it is an example to the rest of the world.

The development years

There are some 12,000 residential properties in total in Gibraltar.

In the early 2000’s demand for quality property easily outstripped supply. This attracted new developers into the Gibraltar market building properties aimed at incoming ex-pats, including high net worth individuals or company employees. The popular Ocean Village, a mixed use marina, residential and commercial property scheme launched its off-plan sales in 2003 and sold out its 133 apartments within a month. This in itself attracted further development from other builders as clearly the demand was there. Tradewinds, by Taylor Woodrow, soon followed with 81 apartments overlooking the Ocean Village marina closely followed by the Anchorage (120 apartments), Ocean Village phase II (180) and the most recently completed developments around Gibraltar’s other marina, Queensway Quay, known as King’s Wharf (120) and the Sails (48).

That equates to some 680 apartments released between 2006 and 2010. And all, bar a handful of apartments, are sold, the vast majority of which, off-plan. The market has easily absorbed this new supply without any drop in prices.

Certain properties at the lower price points are built by the government strictly for its own citizens satisfying certain criteria which excludes new entrants. The purchase of these properties is tightly regulated.

Who is buying and renting?

Locals moving up and down the property ladder, new entrants and buy to let landlords are all buying properties currently.

Property investors are taking advantage of the strong levels of employment by buying apartments to rent out. Gross yields of 5% in the best locations to 7% in the more affordable locations are being achieved. Coupled with continued expectations of capital growth in the mid to long term, such returns remain attractive. And few voids are encountered, especially at the lower end of the price spectrum, as companies moving employees to Gibraltar rent before they buy whilst others seeking to buy may be struggling with the higher deposit levels required in this new era, so choose to rent.

In my own agency, Chesterton, lettings are 18% up year on year, which reflects the strength of this particular market sector.

Demand and supply

Typically what drives any property market is the balance between demand and supply. The most obvious example of this is the Spanish property market today where demand is low due to a general lack of confidence, whereas the supply of unsold properties probably exceeds one million. This imbalance is driving prices lower.

In Gibraltar, property buyers remain confident and demand is robust. The supply increased in those years and virtually all of the properties have been sold. Hence the continuing steady inflow of new entrants ensures that property prices are at least maintained and if there is no new significant supply in the short term will lead to further price increases in the mid to long term.

Lower prices in Spain

The decreasing prices in Spain do have some attraction to would be buyers of Gibraltar property. You get much more for your money in Spain than Gibraltar in terms of property size. And on this measure alone, Spain will attract buyers away from Gibraltar.

However, tax residency of Gibraltar requires a property purchase or rental in Gibraltar, so for tax reasons, many buyers cannot consider Spain. The border issues also dissuade some employees of Gibraltar companies from living in Spain, who prefer to commute out of Gibraltar for day trips at weekends for example, than commute into Gibraltar for their working week. There is also a significant difference in the tax position of purchasing a property (max 10% stamp duty in Spain, 3.5% in Gibraltar) and on property ownership (max 2.5% annual wealth tax in Spain, zero in Gibraltar).

International competition

So although Gibraltar’s property market competes, to a limited extent, with Spain due to its geographical location, it perhaps competes more so, with other international low tax jurisdictions.

Unlike most of the population of any particular country, many companies and most high net worth individuals are able to choose where they reside. And if political issues, bureaucracy, lifestyle or tax is not to their liking in one jurisdiction, they can opt to go somewhere else in the world.

Hong Kong, Singapore, Monaco, and Switzerland, amongst others, are all competitors in one way or another to Gibraltar. In their selection process, higher net worth individuals and companies seek lower tax and higher lifestyle for themselves and their employees. Companies also need to ensure that there is a sufficient labour market, political stability, trusted legal basis and nearly always, a reliable IT infrastructure for their requirements. But in addition to this, the property choice needs to be right.

Monaco fetches £40,000 – £70,000 per sq m of residential property whilst Hong Kong and Switzerland are averaging around £20,000 per sq m in the smarter parts. More in the prime exclusive locations.

Ocean Village in Gibraltar trades at an average of £5,000 per sq m, higher for the marina facing penthouses, less for the road facing lower floors whereas King’s Wharf averages £4,400 per sq m. The Island in Queensway Quay exceeds £6,000 per sq m and achieves the highest per sq m rate of any of the existing developments.

On an international comparable basis, it makes Gibraltar properties seem very cheap.

New developments

What Gibraltar does not have much of however, are high end quality houses. So the decision by some high net worth individuals to choose, say, Switzerland over Gibraltar, may not be so much about the tax or the lifestyle but about the availability of a suitable property.

The property market in Gibraltar is responding to this. So just as developers recognised the lack of quality apartments and addressed this issue over the last few years, developers have now turned their attention to providing a new supply of high end housing.

Three such developments are an example of this.

Firstly, Buena Vista Mews, a well built development of five 4 bedroom, 2 bathroom townhouses in the south district of Gibraltar has just completed and are all ready for occupation. Two properties have sold and a further one is under offer. The remaining ones start at £725,000. The properties share a communal pool and all have parking and terracing.

Already under construction, Buena Vista Park, also in the south district, has stunning uninterrupted south and west facing views across the Strait of Gibraltar and Africa. Formally the headquarters of the Royal Gibraltar Regiment, the site has a long and established military history dating back to the late 1700’s. Many of the remaining structures including the perimeter walls, regimental headquarters, barracks and two gun emplacements date back to the 1800’s and will be sensitively restored and preserved for the future.

The development, over three phases, will be a gated community comprising villas and townhouses merging modern materials and technology with a unique heritage structure.

Phase 1, a collection of 6 spacious villas with their own pool and garden, and 9 townhouses, is already under construction with completion set for late 2013. Such is the demand that deposits have already been taken on some of the properties. Prices start at £955,000 for the townhouses and £2,375,000 for the villas. Phases 2 and 3, to be built on the same sought after site, will allow for the creation of bespoke homes personalised for the higher level client, subject always though, to planning consent. This proposition is unique in Gibraltar and is attracting much interest already.

The third development, to be called The Sanctuary, has achieved outline planning permission and is currently being prepared for full planning consent. The Sanctuary will be on a site, which is currently being cleared for the build, set higher up the Rock and within a naturally beautiful setting adjacent to Gibraltar’s Nature Reserve. The views are breathtaking.

The Sanctuary will be a private enclave of luxury and elegance. Just five very special villas, with private and secure gated access, and internal space of some 1,000 sq m each. Each villa will have its own private pool, spacious indoor and outdoor living and dining areas, waterfalls, open air en-suite bathrooms, a gymnasium with sauna and jacuzzi and the ultimate haven of expansive rooftop gardens. Although not for sale yet, Chesterton, with sole agency rights will market this development internationally and we are already being approached with expressions of interest.

The fact that developers built apartments a few years ago to satisfy demand then, and are now looking at the higher quality end of the Gibraltar property market, building houses, demonstrates how Gibraltar itself is becoming more attractive to a high end buyer.

Who can buy?

Anyone can buy a non regulated property in Gibraltar. Any EU national has the right to work in Gibraltar and as a result become a resident if they have employment or other means of supporting themselves. Otherwise, residency will be considered subject to application.

More information

Gibraltar is a modern, trusted and well regulated EU economy. Chesterton, established in 1805, specialises in hand holding the entire relocation and establishment of companies and individuals into Gibraltar from its real estate office in Ocean Village, Gibraltar.