Spring in the Property Air – Residential Property Market UK and Gibraltar

There is a hint of Spring in the air when it comes to the residential property market both in the UK and Gibraltar. Various UK bodies have recently published property related data, most of which signals the start of growth in the property market and hence perhaps now is a good to buy. Gibraltar usually follows the UK, albeit in Gibraltar we rely on anecdotal data.

According to the Council of Mortgage Lenders (CML), a UK body of banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK, almost 140,000 buy-to-let mortgages were advanced in 2012, the highest level since 2008. Gross buy-to-let lending reached £16.4bn over the year, up 19% on 2011. CML director general Paul Smee commented “Buy-to-let is benefiting from strong tenant demand, which is likely to continue. The overall outlook for the buy-to-let sector is positive”.

Furthermore, the CML also reported a fall in the number of properties taken into possession by first-charge residential mortgage lenders. Repossessions fell from 37,300 in 2011 to 33,900 in 2012 – the lowest annual figure since 2007.

The Royal Institute of Chartered Surveyors, in their most recent UK housing survey published in February, said that the number of newly agreed sales is rising, with a net balance of 15% of their members stating that levels of residential property sales are up. RICS reports that transactions have now risen for four consecutive months. RICS director, Peter King, commented last month that “Along with other signs, this suggests that the very worst may be over for the market.”

According to the Office of National Statistics, house prices in the UK increased by 3.3% in the year to December 2012. The rise in property prices is up 2.2% from a 12 month window through to November 2012 last year. The year-on-year housing price increase reflected growth of 3.4% in England, 2.4% in Wales and 3.1% in Scotland, which were offset by a decline of 5.7% in Northern Ireland.

According to the Centre for Economic Business Research’s quarterly “ Housing Prospects” report published last month, house price growth in London between 2013 and 2018 is forecast to be 31 per cent. The CEBR forecasts that during the same period, house prices will rise by 25 per cent and 26 per cent in the South East and East of England, respectively. Growth in other regions is forecast to be lower but still positive.

Interestingly, the first public flotation on the London Stock Exchange this year was last month when UK housebuilder, Crest Nicholson, successfully returned to a full listing for the first time since 2007 (when it was taken private due to the financial crisis). The UK house building sector is in a buoyant mood.

Here in Gibraltar, demand has continued for additional properties at, we believe, the same rate as prior years yet there are no new open market residential apartment schemes being built, or even in the pipeline.

During the period 2006 – 2010 there were some 1,000 new apartments released into the Gibraltar open property market. Except for a handful of 3 and 4 bedroom apartments, the entirety of this new stock has now been sold and occupied.

New companies are still moving into or being established in Gibraltar, predominantly (but not exclusively) in the gaming (including ancillary services to the gaming industry) and financial services sector. The main residential demand is for lower cost properties, simply because most companies are structured with a few senior management, more middle management and the majority of lower paid staff. Many employees cannot afford more than, say, £1,000 pcm rent, or £200,000 to buy. Most incoming employees will not buy immediately as their jobs do not necessarily have longevity or certainty and being new to Gibraltar, they often want to adopt a wait and see approach. Hence they tend to rent.

At Chesterton, we continue to face high demand for rental properties at the lower end of the price spectrum. However, as there has not been any reduction in rents at this end of the market as far we can tell over the last few years (probably the opposite), tenants have traditionally looked to Spain for accommodation which is much cheaper.

The incoming tenant’s preference is increasingly Gibraltar. We believe that this is partly because of the greater trust in the legal, tax and administrative framework of Gibraltar over Spain, as well as the lifestyle benefits. Put simply, tenants would prefer not to register as a resident in Spain as it is deemed too difficult or too expensive to comply with the obligations that such residence necessitates. Hence even current Gibraltar employees living in Spain are looking at opportunities to move into Gibraltar.

Stock levels are reducing in the rental sector in Gibraltar and this means greater returns for buy to let landlords, and an increase in the number of landlords as vendors decide to rent not sell. Rental prices are hardening, and this normally precipitates property price growth, starting at the lower end of the price spectrum, and then moving up the value chain.

Is the above data firm evidence that a property recovery is on its way? No, because this is selected data. But hindsight may suggest that now was the time to buy.