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Mallorca Property In Crisis - Or Is It Just A Blip?
Are Mallorca property prices set to plummet? This author thinks not.
I can't remember the number of times that I have heard the "I will wait for prices to drop" line and wanted to shout "wake up and smell the coffee". Unless the current financial crisis effecting the major world economies proves to be indefinite then don't expect prices to reflect this in Mallorca. In fact, whereas there is a real estate crisis in the rest of Spain, the Balearic Islands and Barcelona were the only two areas in Spain to have price increases in 2007. We simply don't have a 500.000 property surplus here on the island as is being reported on the mainland.
Yes, prices do seem to have stabilized over the last two months and the local Spanish and Resident market is all but still. Certainly, the credit crunch, to coin a phrase coming out the UK at the moment is also being felt here. Interest rates of 3.0% on mortgage just over two years ago are no longer and the current starting rates of around 5.5% give or take are being felt in the pocket. But the monthly cost of borrowing here in Mallorca is still cheaper than in the UK, where a large proportion of the investors come from.
So the British Pound has dropped against the Euro. Yes, and this will effect the top end budget of the buyers that are looking but even then, most buyers have a certain margin in their budget so they can either absorb this extra cost or look at slightly cheaper properties, it does not stop them from buying. Add to that the fact that many investors now have euro accounts anyway and the increasing use of commercial exchange companies the knock on effect of this is greatly reduced.
So why aren't prices dropping? Well, it is the nature of the property in Mallorca and the owners that defies the logic of other real estate markets. A large percentage of the property in Mallorca are second and holiday homes. They are luxuries of the rich and even the not so rich but certainly well off few. Lets face it, not anybody can afford to spend even the 100.000 euro minimum to buy a Studio apartment in the Santa Ponsa for example. Add to this that it is money spent on a holiday home and you see the profile of the person we are talking about. And that's without even considering the 450.000 euro minimum it will cost you to buy a 2 bedroom Luxury Apartment on a golf side development. And I won't even go into the villas. Who can afford to have a 2.000.000 euro villa sitting empty for 10 months of the year? Well not anybody.
And that is the reality of the property owner / vendor of a large chunk of the properties here in Mallorca. Almost regardless (and I stress almost as, of course, there will be individual cases where this is not true) of the crisis's around the world economies, there is no underlying necessity to sell. There is no new job taking you 400 miles away from your current home. There is no "top performing school" in the next county, there are no property chains from first time buyers to 'upgraders' to 'downsizers' to retirees. People own a place in Mallorca because it is a jewel in the Mediterranean, it has charisma, it is desirable - even famous people have property here! They have property here because it is a luxury and they can afford it.
On top of that, it cost them 10% on top of the sales price to buy it in the first place and its going to cost them 18% of the profit when they sell it. Nobody wants to sell at a loss, especially not real estate and certainly not luxury real estate. Take our 100.000 euro example, if you want to turn that around and sell it without loss and you are not a fiscal resident in Spain then you need to add 21% to your purchase price to break even at point of sale.
That is the essence of price stability here in Mallorca: the fact the real estate market is largely based on luxury second homes, there is no underlying need to sell, the cost of buying and selling factored into the bottom line and simple supply and demand - I have it, you want it and I'm in no rush to sell.
So if you're thinking about buying something in Mallorca do so now, not in two years time "when the prices have dropped", because they haven't dropped in the last 20 years so why should they start now. In fact, wait two years and it will probably cost you more. At least 21% more from they guy that bought it two years ago!
Sebastiaan Kemna has been in the Real Estate business in Mallorca for over 10 years and runs a very successful Estate Agency in Santa Ponsa as well as a successful property portal:
Source: www.articlebiz.com