Impact of Financial Crisis

Gibraltar: still one of only a few economies in Europe to post growth in what is widely regarded as the worst Global economic crisis since the 1930’s.

What impact has the global financial crisis had on Gibraltar?
Safe to say that the end of 2008 will be remembered by all as a period in which the phrase“oh sh*t” will have been used somewhat more regularly than normal – there was another phrase, but I think that might be a little too graphic for this magazine.

Back in the 1980’s and early 1990’s (during the last global recession) the economic crises really harmed Gibraltar, largely because our economy in those days was not as robust and diversified as it is today and was driven predominantly by the MOD. Clearly this time round most people braced themselves and waited to see how we would be affected. Confidence was always going to be a major factor and regardless of what our own economic realities were (and they were good) most clients, investors and owner occupiers were playing a waiting game, and understandably so. It was during the latter part of the 1st quarter of 09 that it became clear that we were managing to hold our own in what was becoming the greatest financial crisis for generations. Although our economy was posting growth (GDP growth between 2008 – 2012 has been between 5% and 8% yearly) and therefore keeping the market fluid, we did have our own issues... as a result of Gibraltar’s fast growth over a short period we had inherited a somewhat excitable speculative market and the substantial investment from unseasoned speculators, something which was obviously proving to be a real challenge all over the world……need I mention Fanny Mae or her friend Freddy for that matter – you get my point I’m sure, although if you didn’t, you might think I was referring to an inadequate relationship – hmmmm. One needs to recall that between 2002-2007, the market increased several folds as banks and developers got somewhat ahead of the game and as a result started pushing projects and increased expectations on prices; returns were evidently great and essentially a great many jumped on the gravy train. The end result of all of this when the dust settled was oversupply and a dangerous percentage of speculators with no real worth to complete on purchases; but unlike most other economies, it was thanks to our own (strong) economy that these empty properties were either re-purchased at original prices, or slightly discounted, or let which again served to highlight the growth in new business - the thrust of the point being that our robust economy was able to underpin and prevent what had been the catalyst of so many other property markets to collapse.

So where does the market stand today?
 Today we are still encouraged by the fact that the top end of the market stands at approx £5,500 to £6,000/sq. meter, and has been maintained throughout; in other words, the market has held its own. It is true however that there have been adjustments in certain developments where expectations were over-inflated by the developers or indeed the market in general. The only real concern we have, is the potential prospect of a double-dip, and the events unfolding around Europe do suggest this is a serious possibility. Some experts argue that another recession could be an opportunity for Gibraltar; indeed, this could attract more business to Gibraltar and therefore benefit the property market. No one can really forecast what will happen but as an optimist, I would like to think Gibraltar is well positioned to attract more business. Gibraltar is small, safe and well regulated; the fact that our first language is English and we apply common Law also presents advantages for firms looking to relocate, as some FTSE companies already have. In addition and as we have seen in the past, with access to the EU market through ‘passporting’ on Insurance and Banking, the uniform tax regime (10%) that was implemented last year will in my view generate further interest and entice companies to follow the lead of the ones who have already taken the step to relocate to Gibraltar. We are already seeing the previous over supply trends developing into demand trends in certain developments with properties generally rising in price and we remain cautiously optimistic. We have seen a marked increase in sales at various developments and particularly Europlaza; although last year and the previous had seen sales slow in this development and prices had actually dropped by about 10 - 15% from its peak in 2007, this year has seen a visible increase in sales with prices (particularly on 3 beds) hitting close to the 2007 peak, which is great news for Europlaza, and the market in general. Interesting that the buyers in these cases have all been from local stock, which we believe further underpins the strength of our economy.

Kings Wharf and The Anchorage continue to churn out great deals and good numbers of sales; we have had the privilege of dealing with over a dozen families moving into The Anchorage in the past 6 months and about the same amount at Kings Wharf...good going we think, and great signs that we have an active and fluid market particularly in the new mid to high end developments, which had for a time, caused concern due to the speculative investors who were committed with no real exit strategy. Again, in these cases we are seeing a good proportion of local stock buying as well as international clientele making the most of what we consider great values. Buena Vista Park Villas has also taken us by surprise, although to be fair, we have been focusing our efforts aggressively in this development. The fact that we are seeing positive movement in this development leads to undeniable evidence that the high end market of £1m properties is very much here and here to stay – it also provides further options to The Island and Admirals Place which remain at the top end of the scale. We are delighted with the sales we have achieved so far with further reservations made recently, we hope they too materialise and we continue to strive to attract discerning clients to our British Gibraltar shores. On Commercial / Office accommodation? Recently we are also encouraged by a substantial amount of commercial relocation work (from within Gibraltar and new business); approx 4000sqm sq. meters over the past 18 months, which is very significant for Gibraltar. If you consider that the Europort commercial complex (which we were involved in the sale of, back in 2000 and was only 40% occupied at the time) is now up to 99% occupied, this will surely give clear indication of the sort of direction Gibraltar is taking in terms of commercial property. Shockingly If we had one company looking to set up in Gib with requirements of 1,000 sq. meter+ of space, we would sadly not be able to entertain – so, a positive in terms of position but with no means to expand……a problem waiting to happen you might ask? Moving forward, if Gibraltar wants to attract increased investment, for instance from the BRIC countries, we will most certainly need to address this challenge; this is something the Government is acutely aware of and I am sure they will seek to provide developers with the confidence they need to start building. We have a successful track record and investors should be bullish and take what some might argue is a calculated risk. More to come on this front in the very near future!!! Lending and the Banks….The challenge also lies on the side of the banks; one can’t help but get the jitters when you hear the word bank nowadays, from a personal point of view they have been a godsend to us Estate Agents of late, given that any time us agents get any grief, we just use the words bank, debt and credit in the same sentence and hey presto, we become saints in a flash…;) Seriously though, I personally think it is testament to the strength of our economy and the due diligence and attitude of lending practices in Gibraltar that has resulted in there being NOT ONE single (personal) repossession on the market. I have had the pleasure of meeting up with a few of our colleagues at NatWest recently and it is so very encouraging to hear their thoughts and views on how to further improve on services and our communications in order to improve the experience that all our mutual clients deserve. However, whilst we agree that from a local perspective we are comfortable, the financial crisis means that our retail bank headquarters (not based in Gib) are applying a global strategy to lending criteria which some argue is not relevant to our own buoyant and robust economy. It is therefore welcoming to hear the news that one of the key initiatives that the new Administration is embarking on is the setting up of a local bank, which is a great initiative and will hopefully lead to a more fluid lending criteria, in retail and wholesale for both commercial and residential projects.

Where to next…?
So to summarize, I believe the market is stable and we are in remarkably good shape. In my view we have overcome what I considered our greatest threat that being over supply and too much speculation and having warned about this and its potential to threaten the market three years ago, I believe that we have safely seen off and managed these concerns to the extent that our property market is now well adjusted and generally priced accordingly, allowing for a hardening of prices and a tilt in the balance of demand and supply which for some time had been tilted toward supply. This may well lead to increased prices over the next 18 months, particularly with no high volume residential developments in the pipeline.

To conclude, I will end my contribution with an interesting anecdote and one which I
think perfectly represents us…………. I had the privilege of dealing with two HNWI’s both European nationals and both residing in other finance centre jurisdictions, one in Monaco and another in a Swiss canton and coincidentally both relocating to Gibraltar.I was keen to ask why they would want to leave these two perfectly stunning locations and move to Gib (not to say that Gib isn’t stunning, but hey we are talking Monaco and Verbier here); interestingly they both had similar reasons for the move, driven largely by political insecurity / uncertainty in Switzerland and an artificial lifestyle with little culture or community life in Monaco. Gibraltar, was not just a fiscal choice, it had also become a lifestyle choice which offered community spirit oozing with cultural traits, real lives and a focus on family spirit; essentially a safe haven and a perfect location to reside in, safe, comfortable, low key and well managed. I sincerely hope that we are able to maintain these fundamentals which I firmly believe are part and parcel of our continued success in attracting new business.