Property outlook 2020

 

By Louis C. Montegriffo Managing Director, BMI Group

 

It is clear that our way of life, how we interact and how we do our business will not just be impacted for the short term but may also be with us for the medium to longer term. The fact that a great many of us are now able to work from home and are able to do so effectively will have a knock on effect on the future planning of businesses and their office space planning requirements; it will also influence how we choose to live our lives at home and how demand for property sizes may change because of this.

Changes although hard to adjust to, will invariably bring positive elements too and will have the capacity to teach and remind us of how we may take the simple things in life for granted, how we have ignored a real call for environmental change (the skies are cleaner) and how looking after our health and taking positive steps towards it can make a real change for the better; I refer to the latter as I do not recall ever having seen so many people, cycling, power walking, jogging or enjoying the many nature trails that we have locally.

 

The market is dead, long live the market

As outlined in our first BMI Covid-19 update in March, Gibraltar remains fully active and open for business, both in the office and remotely at home. Gibraltar has pushed hard to maintain a presence in the market.

Under the lockdown we were bracing ourselves and expecting all “new business” to grind to a halt, but were surprised with the general up take by applicants. Post lockdown this has continued.

Our focus has been to maintain and manage all existing and pending sales in the pipeline and we are delighted that all have either completed or are set to do so. We see this as a good indicator of the mindset in the market and the general view that, the market wants to continue to drive the market.

Although clearly still too early to say, we are optimistic that Covid-19 will not adversely affect the market in the medium to long term. So far, applications to let and interest in residential sales portfolios suggests that although the market is substantially quieter, there is movement in lettings and sales, albeit under a rather heavy cloud of uncertainty and somewhat different methods of showing properties listed.

There is no question that the volume of interest has slowed down, to suggest otherwise would be foolhardy, but the fact that there is activity is a positive during these difficult times; importantly, from our own perspective and akin to the sentiment taken by Gibraltar Inc, we all want to be in a solid position when we come out of this.

 

The market position prior to Covid-19

Prior to Covid-19, we had been warning of a slight over heating in the market in particular segments, these segments will no doubt be suffering the brunt of the impact of Covid-19; speculative markets will undoubtedly be the worst hit during down turns, but our belief in the four tier market which we have seen grow over the past two decades will hold its own and will not be dragged down by one segment of the market.

Portfolio listings in both sales and rentals in Gibraltar had seen substantial increases in volume, particularly in lettings and we had already seen a signal of adjustment in pricing, where there was already a clear oversupply in new build smaller buy to let, speculative units. Conversely, the owner / leasing occupier sector driven by larger units in all ranges, one to four bed units had held well given the lack of supply in this sector, and in some cases it experienced increased prices in sales and rentals because of this further underpinning the maturity of the sector in general.

2018 /2019 were crucial years in many respects and of course were highlighted by Brexit negotiations as a real factor on how the market would develop. New off-plan developments should be primarily driven by that fundamental sector known as the “owner occupier market”, without it there is no market and the sector falls prey to speculation. This is only further amplified under our current status quo.

We had expressed concern with proposals primed solely at the investors market and offering only one product such as the studio / small one bed unit with overly high rates / sqm. We will continue to follow and review this sector.

Historically, and during uncertain times, the safer investments have tended to feature mixed distributions of 1 – 4 bed layouts. These owner occupier lead developments have consistently rewarded investors because they (by default) reduce exposure to just one market or applicant profile, and thereby increase percentages of owner occupiers who tend to seek 3 / 4-bedroom properties; this reduces risks by splitting markets up and attracting varied profiles.

 

Opportunities will invariably present themselves

The Bank of England have reduced interest rates once again to the lowest levels ever, thereby providing cheaper access to borrowing. Some investors have been keen to jump into the market for the right deals, which do exist if you are looking at the medium to long term exposure.

Looking at the bigger picture and considering Gibraltar’s historic ability to overcome hurdles, there are indeed opportunities for all, and not just the savvy investor. The appetite is there, albeit overshadowed by an uncertain eye; and true to the nature of our small, diversified and dynamic economy, our innate ability to seek new goals and new markets will be sought and found.

It is the very basis upon which Gibraltar has survived and flourished in the past.

 

In summary

Navigating this chapter in our story is of course crucial and to date we (Gibraltar Inc) have done phenomenally well in managing the primary factor of this virus, that being the health and well-being of our health service. The government has also taken crucial steps in managing what is essentially an economy in partial levitation (the pause effect). The BEAT Covid19 facilities to business’ in real need, have provided a much-needed fiscal lung and adds a level of comfort and confidence to our economy and in the governments handling of this crisis. Their steering and management to date has been nothing short of exceptional, in all aspects, but in particular, their steadfast grip and resolve in minimising the clear anxieties we all feel, from the personal to the fiscal. We say this with no agenda, but rather a show of support and thanks; and we do so with the firm belief that this will pass and we will be stronger, wiser and better placed to emerge from this in the best possible form.

Moreover and as mentioned by the Minister for Financial Services, it will be our capacity to deal with this crisis in the manner that we are, that will earn us the respect of those seeking to invest and re-locate to Gibraltar as we see brighter days emerge; for it is the example we show during this crisis that will instil confidence in our economy and way of life for the future.

We hope you are all staying safe and doing well and wish you the very best during these difficult times.