Property Development in Gibraltar.

Last month, some 90 apartments at West One, Eurotowers were sold in a matter of days. The market response to the launch was truly amazing, we all expected strong sales, however, we did not expect every studio apartment to sell within 48 hours and every one bedroom apartment in 72 hours. It may have set a new Gibraltar record for the speed with which the (open market) apartments sold.

There remains pent up demand in the market place for properties priced such that the swathes of employees in Gibraltar who do not qualify for the local market due to the three year residency rule can purchase or rent them. Gibraltar needs more “West One’s” if it wishes to attract and retain employers who want their staff to live in Gibraltar not Spain, and at rents the employees can afford.

This off-plan success follows the pattern of recent development launches. The lack of affordable property in the open market remains a real concern. Demand exceeds supply by some margin.

The success of West One was not so much about the value in terms of price per square metre. It was the absolute prices of each unit. The smallest studio on the lowest floor was just below £105,000. Most of the buyers will have been investors. To achieve their target yield of 6%, rents will start at just over £600 per calendar month. In the open market, this is “affordable”.

Look at the numbers. According to the Chamber of Commerce’s recent study, some 9,200 workers commute in from Spain each day. Say 25% would rather live in Gibraltar if they could afford to do so. That’s 2,300 employees of Gibraltar companies who need somewhere to live.

Now let’s look at what they can afford. Gibraltar prides itself in hosting buoyant gaming and financial services sector companies. Those companies will employ people of £15,000, £20,000, £25,000 per annum. That equates to approximate take home pay of £13,000, £17,000 and £20,000 (subject to allowances of each individual of course), or £1,083, £1,417 and £1,667 pcm.

Next, we look at the supply side. None of these employees qualify for any of the 6,000 or so properties designated to the three year residency rule or the housing list. So to enter that market, they must become a resident first. Not that easy. Checking availability from all the local estate agents at the time of writing this article, there are just seven apartments in Gibraltar available to rent below £1,000 pcm. Of those seven, I suspect one or two have already been rented or are not actually available. The £15,000 per annum employee has no chance of renting and buying food. The £20,000 per annum employee can spend £400 on the essentials of utilities, food and clothing. I doubt he or she can go out much though. The £25,000 per annum employee (just £3,000 below the Gibraltar average of £28,000 per annum) has £667 to spend a month on essentials, entertainment and perhaps a little saving for the future.

West One will add sixty-five properties to the market at below £1,000 pcm. Perhaps 2,500 employees may be interested.

In a conversation on Facebook’s ‘Speak Freely’ during the launch, a contributor was criticising the building of more property “ it is unfair to keep building these type of properties just to keep non locals happy and turning Gibraltar into a massive concrete jungle in the meantime”. It is an often voiced opinion. However, what the people with this opinion must take into account is that most Gibraltar employers have a choice of location: Malta, Isle of Man, UK, to name the main competitive jurisdictions.

When an employer considers where to establish or relocate, it will consider many factors for example, tax, availability of the appropriate workforce, cost of the appropriate workforce, cost of commercial property etc. It will consider the sum it must pay its employees for them to be able to live locally. As seen above, you cannot employ someone below £20,000 per annum (perhaps higher) and expect them to live in Gibraltar unless they already qualify for local housing. Therefore, they must live across the border and face the administrative and fiscal consequences of that necessity. So if Gibraltar does not provide affordable property for the non-local workforce, employers may seek alternative jurisdictions.

Most of the population supports economic growth. Because economic growth brings Commonwealth Parks, free buses, the subsidised Gibraltar Music Festival and attractive terms and conditions for public sector employees. To sustain economic growth, Gibraltar seeks more not less employers coming to the jurisdiction. You cannot have both (without a huge structural shift in the economy), economic growth with a consequent higher number of employees, yet, no more building of apartments for the additional workforce to live. Hence, to keep property rents down, more properties must be built, not just government housing for qualifying individuals, but property for the swathes of employees who work in Gibraltar, and contribute to the economy so much.

We need more “West One’s”.

And as an additional boost to the economy, once West One is fully occupied with employees who have moved in from Spain, that’s another 90 or so salaries being spent on utilities, food and entertainment in Gibraltar which is currently being lost to Spain. Which means more jobs and more government revenue.

So I do not understand the argument that these properties do not benefit locals. They are essential to attract and retain employers, who create employment that funds the economic activity that pays Gibraltar’s bills. Without such properties, Gibraltar will be priced out of its international market.