Gibraltar: The Rock finds a brand new role

Graham Norwood discovers how cutbacks have fuelled a new property boom

Imagine Bournemouth in the 1970s, add a Mediterranean climate and you have Gibraltar 2005 - with a possible property boom in the offing.

Britain's most famous surviving colony has 30,000 residents on 6.5 square kilometres of land at the southern tip of Spain. Old-style Minis sit in 30-degree sunshine, the Rotary Club remains a major social force, you can visit the Norwich and Peterborough building society and eat fish and chips on Sir Winston Churchill Avenue.

The population is on the elderly side, the euro is unpopular and so is Jack Straw who, when Foreign Secretary, was suspected of hinting that Spain may one day get the Rock back.

Until recently property prices have been low because, historically, most demand was for rented accommodation for Britain's naval presence. In 1960 there were 10,000 sailors here and only 12 per cent of the population were owner-occupiers. But, following a decade of cuts, there are fewer than 1,000 sailors and 50 per cent of homes are owner-occupied.

Over the same period Gibraltar has consolidated its role as a tax haven, evidenced by large gin-palaces in numerous marinas around the Rock's tiny coastline. The recent growth of online gambling firms based in the colony means there has been high demand for expensive villas, too.

"There are properties priced up to £15m on Gibraltar. The upper end has done very well in recent times and rose 15 per cent last year alone. That's slowing down but there's still an excess of demand over supply so we're looking at 10 per cent rises this year," says Diana Bray, the director of Bray Properties.

She says up to 60 per cent of her buyers are British, moving either from the mother country or from expat communities in Spain. "They decide they want somewhere in the sun where it's easy to buy, very British and where moving costs are cheap. Stamp duty is 1.25 per cent here compared to 7 per cent in parts of Spain, and there's no capital gains tax when you sell," she continues.

But there is a whiff of change in the air, surprisingly caused by the British Ministry of Defence. Not only has it sold 148 sites of its own but it is also offering 14 prime sites for new developments with another 20 sites to be available before the end of the decade. Tenders are out and developers are piling in to build apartments that the authorities hope will attract more varied residents.

"Gibraltar's always appealed to high-net-worth individuals, but these new homes will be high density. They're on prime seafront locations, because that's what the MoD used to own. They will fill the gap that exists for less expensive homes and for first-time buyers" says Brian Hill of H&S Property Services. His office is on Main Street, next to Marks & Spencer - how British is that?

"In six new developments earmarked for future construction, most properties will be two or three bedrooms, probably priced at £200,000 to £250,000 each. This is what Gibraltar needs," he says.

Just as in British city-centres, where high volumes of new flats have raised standards, so estate agents on Gibraltar hope the hundreds of new homes on old MoD sites will boost the Rock's mid-market. Currently one-bedroom apartments at good sea-front locations fetch £100,000, with two-bedroom units at £140,000 and three beds approaching £200,000. A four-bedroom colonial style house without a sea view is more than £350,000. "Most Britons who come here to retire buy outright from the equity on the home they sell," says a spokeswoman for the Norwich and Peterborough building society .

The rental sector, which remains large, gives investors good returns. A three-bedroom town-centre apartment can cost £2,000 per month, while two beds in newer developments with good sea views fetch £2,500.

"There's currently more demand than supply. Whenever we've marketed new developments they've completely sold out in three to four months," claims Diana Bray.

The big risk for Gibraltar is that the glut of new flats over the next three years, rather than reinvigorating the area, may saturate the market.

But estate agents and claim the market will remain solid - as a Rock.

Buying and selling in Gibraltar

* If an offer is accepted a buyer pays a 2 per cent deposit on a second-hand property or 5 per cent on new-build

* Most new homes are flats with 150-year leases.

* Several mortgage firms operate on the Rock, lending up to 95 per cent of price - arrangement fees can be 0.15 per cent

* Commission a survey before committing to buy

* Legal fees are up to 0.5 per cent of price, stamp duty is 1.25 per cent, and £300 will cover document registration

* Tax relief exists on mortgage interest and life assurance is required by a lender

* There are tax breaks for first-time buyers

* For sellers there is no capital gains tax, even on second homes