Property - Where to next??

Of late making sense of anything is hard, the phrase “we live in uncertain times” seems to be making its way into the hall of fame for quotes…….together with “let’s get this done”, “Brexit means Brexit” and, how could we possibly forget the big red bus and “let’s take back control”

You may ask, what on earth has the above got anything to do with property?.... well what part of our daily lives over the past three years has not in some way or another, NOT been touched by the events June 23rd 2016……believe me the property market is no exception to the rule.

Fact remains that property prices have generally moved upwards since 2016, in fact very much so from Q4 ’16 to mid- ‘18; yes, in our view it was unexpected to have experienced price hikes of up to 15% over that period, but the fact that we had a lack of supply in certain segments and an economy continuing to grow simply generated a bull market with rising prices. The uncertainly of Brexit over this period really only affected the top end (4th tier) in the market and it would be true to say that this tier has been relatively flat ever since. We / I have sometimes been referred to as sailing the cautious wind when it comes to forecasting the market, we like to attach #zerohype #seriousadvice to our branding and we have done so because of the hype of the past few years in so far as new developments and particularly some segments in the market which in our view are most certainly surplus to demand and end user.

In the last 18 months we have warned of potential increased stock levels driven by speculative demand and we have also highlighted the fact that this results in increased rental properties available.

This month (October 19) we list approx. 45 properties to let, as opposed to an average of approx. 10 previous to mid-2018.

In past issues we have referred to our experiences in 2008 with the over supply of off plan developments and the impact caused which led to increase stock levels in rentals, followed by a price adjustment. We have also warned of over pricing and the fact that price reductions, which are a reality today, are not necessarily the result of a downward trend but merely an adjustment to the levels that the market is prepared to go to. Our firm view today, is that there is a general (price) adjustment across the board; interestingly unlike in 2008 the adjustment is not just a flattening or downward trend, but rather, in all directions and with varying pace.

This from our perspective is the result of multi trends steered by demand or supply:

• The new studio / small one-bedroom off-plan sector pied-àterre segment are of a little concern, regardless of Brexit we do not see the end user being a cross frontier worker renting a three bed town house in Alcaidesa for €750pcm and swapping it for a studio at £1,000pcm – that is not to say that we do not see a market in this segment, but volumes of proposed units are high as are sale rates which in some cases are reaching up to £7,000/sqm.
• High density off plan luxury developments have to some degree (and in some areas more than others) seen a flattening of prices and in some circumstances, where the speculator wants an exit, sold for less or a similar amount to price levels at launch – this signifies a downturn and lack of demand at this segment.
• High end off-plan developments with a good mix of units across the board (i.e 1-4 beds) by default increase your margin in attracting owner occupiers (the real market) and tends to reduce exposure to speculators. We have found these projects, also lesser in volume, have done well over a similar period since their launch and we are seeing good profit margins in most cases.
• Existing stock within the £300,000 to £900,000 range is relatively stable with some of the larger properties in the 2 / 3 / 4 bedroom range seeing good growth and demand, further highlighting the confidence from the owner occupier driven markets.
• The 4th tier (£1.5m+) remains in general relatively flat. We had also forecasted this some time back. Understandably parking upwards of £1.5m under the circumstances upon which we find ourselves will be a tough ask and although we are not seeing price reductions, we are equally not seeing the turnover of sales that we had witnessed previous to June 2016.

A mixed bag if there ever was one; from our experience and having witnessed various ups and downs in our 21-year history, the positive story remains that there continues to be strong demand, more so in specific segments led by owner occupiers.

The market however is price sensitive and we have, on many occasions, highlighted over pitching which invariably leads to lack of sales and inevitably a reduction in price. This reduction in price must not be confused by a recession in the wider market but rather a sensible adjustment to market prices.

Touching slightly on commercial property, we are pleased to have had the opportunity of working with the developers of 117 Main Street, a refurbishment of an old grandiose freehold town house located in the heat of the city centre. There is clearly demand for refurbished grade A office space in the old town area and we are delighted with the fact that Sovereign Group will be relocating their entire operation into what will be a spectacular 1,300sqm of high end GradeA office space within a truly charming Freehold Building. We think this move marks and underpins confidence in our economy and a significant investment from an established player in the financial services sector.

Regardless of some concerns within the residential / lettings sector, the fact remains that we have and are enjoying growth in our economy, driven by confidence from existing and established firms as well as from new sectors such as DLT. Gibraltar will in our view continue to be an attractive proposition and although hurdles out of our control will present challenges, we are well placed and very able to overcome the uncertainties surrounding our small but dynamic and resilient centre – if our history has anything to teach us, it is that we emerge far better from our hurdles than most.

The above summary and opinions are views expressed solely by BMI Group. We are established Estate Agents and Development Consultants and have been providing guidance on the property sector for over 21 years.