What is the impact of the Spanish property market on Gibraltar? Well, Spanish house prices have fallen for 15 consecutive quarters in Spain. The average price of a residential property fell 11.2% in 2011 compared to 2010 according to Spain’s National Statistics Institute. Sales volumes across Spain were 26% down in January 2012 against January 2011. In Andalucia, that reduction in sales volumes was 39%.

Prices are now officially 22% below the peak in late 2007 although most commentators would probably suggest the fall has been much higher. The 4.2% fall in the last quarter of 2011 is the largest quarterly fall since records began.

Can it get any worse? Probably yes. The banks have been hoarding properties, somewhat in denial of the financial situation, but this will change now as last month the government passed a law forcing Spanish banks to make far greater provisions for losses sustained on real estate which should precipitate many more properties being released into the market place. A practical example of this is that within the last month Chesterton has been instructed on a number of repossessions between Alcaidesa and Puerto Duquesa.

And with Spanish unemployment at 23% and rising, deficit targets missed, and negative growth, it is a foregone conclusion that there will be more repossessions by the banks adding to the 330,000 properties repossessed since 2007.

When these figures were published in mid-March, there was concern amongst some in Gibraltar that such dire statistics may be indicative of or may precipitate the property performance in Gibraltar. Yet the Gibraltar property market is very different to the Spanish property market for three core reasons.

Supply

Going into the recession, it was estimated that Spain had some 1 million unsold properties. With the banks starting to release their stock, supply will increase, forcing prices down further. Gibraltar does not have an over-supply of residential property. In fact, it is the opposite. The scarcity of land in Gibraltar (compared with the vast amount of land in Spain) partly explains why the two property markets are so dissimilar.

Demand

Foreign buyers are adopting a wait and see attitude to the Spanish property market. The confidence is not there. The herd mentality which exacerbated the boom will now exacerbate the bust. Compare this to Gibraltar which continues to attract a steady flow of companies, their staff and high net worth individuals, all of whom seeking properties in Gibraltar to buy or rent. Indeed, at Chesterton, we are some 25% up on last year in our lettings department.

Tax

In the last 6 months Spain has reintroduced wealth tax and has pushed up stamp duty to a highest level of 10%. Costs of buying and costs of owning Spanish property are now set to discourage not encourage foreign investment. Gibraltar’s highest rate of stamp duty at 3.5% seems good value in this instance, and of course there is no annual ownership cost via any wealth tax.

On the plus side, with the banks now eager to shed their stock in Spain, one can identify some very attractive purchases with up to 100% finance at historically low interest rates. It may just be that the attractive mortgage side of the purchase equation is enough to encourage investment into Spanish properties.

So whilst the Gibraltar property market has different dynamics to the Spanish market, it is true to say that the increasing ‘value’ that one can find in Spain, may result in buyers choosing Spain over Gibraltar where they have a choice. And this in theory shifts some demand away from Gibraltar. But with the scarcity of property choice in Gibraltar generally, I do not see Spain’s property market materially impacting Gibraltar’s own property market, which remains resilient.