At present, investing in the property market is far from being a get-rich-quick scheme. In recent years, after seeing the potential for a quick and significant profit (particularly with off-plan developments), many people decided to jump on the bandwagon and started to buy properties at whatever price was available, knowing with almost absolute certainty that they would later sell on at an even higher price.
Property prices are no longer increasing in the same way, and although many believe that the property market in Gibraltar still has further growth potential, for the foreseeable future at least we are unlikely to see the rapid increase in prices that we have recently had. Even if prices do start to rise again, it is likely that returns are going to be significantly lower than they have been in the recent past.
As a result of this trend, many will find themselves in a difficult position if they have purchased an off-plan property which they have never intended to use as a home; many may already have a home and have paid a deposit towards a second property simply as an investment. They will have paid a percentage of the full price, usually 20-25%; if they do not re-sell the property prior to completion, they will be faced with the possibility of having to pay the remainder of the price in respect of the property, something which they may not have anticipated having to do. This can pose a problem because a purchaser might have to try and complete on a property which they cannot realistically afford, and if they do not complete they stand to lose their deposit. If they take out a mortgage but are unable to meet the repayments, they then risk having the mortgage provider repossess the property, thereby losing everything that they may have paid towards it.
That being said, this does not mean that investment in property should be completely avoided. If you are sensible in your approach, a property will almost certainly become the most significant and valuable asset you will ever own.
The least risk will come when you purchase a property to be used as a home. So long as you buy at a price you can afford, and if you take out a mortgage on which you can realistically meet the repayments, then you will find yourself in the most comfortable position. Even if the property market crashes and the value of your property drops drastically, if you can still meet your repayments then you can continue to live in the property and use this as your home for years to come. If you do wish to trade up at some point, be it because of a growing family or simply to have a nicer home to go to after work, all you need to do is wait until the market improves and prices start rising, and sell then; this might take longer than preferred and patience will be very important here, but being wise with your investment will pay off in the long run.
For those looking to enter the property market, now might be a good time to do so. Cruel as it may sound, advantage can be taken of buying properties being sold by mortgage lenders after these may have been repossessed for non-payment. These are normally sold at a price lower than market value, as the mortgage lender will only want to cover the amount borrowed and is unlikely to be looking to make a profit.
For those who have sufficient funds with no immediate need to use these, they might want to make the most of a decreasing market. As prices fall, they could purchase a property and then hold on to it until the market prices start climbing again. This may take a few years to happen, but it might be better to invest in this way rather than have the money sitting in a bank account – they could even get a better long term return in this way.
If you do intend to invest in property, simply keep in mind that at present you cannot afford the luxury of being greedy. If you are about to enter the property market, look at all available properties and not simply the dream homes which are out of reach. If you have paid a deposit towards a property which you cannot realistically afford, then you might want to sell whilst there are still people interested in buying. You may not make as much of a profit as you might have anticipated, but any profit you do make is surely better than suffering a loss!