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Are bank valuations relevant to the real value of properties in Mallorca?

February 14, 2010 // Posted in Mallorca property finders, Mallorca property market, Price reductions and bargains, Property finance in Mallorca (Tags: , , , , , ) |  No Comments

You may have seen Mallorca properties advertised at asking prices below their “official bank valuations”. This sounds like a tempting indication that the price has been set at a “bargain” level. Indeed this is sometimes the case, but not always …

The question as to whether the bank valuation is of use relies largely on how recently it was done.

  • Property prices have obviously changed in the last two years. An old valuation will not take this into account.
  • Spanish banks are now more cautious in valuing properties. Valuations in excess of market value were commonplace whereas now under-valuations are the norm.
  • Valuations are an indication of the property’s value. In the UK you would make your own assessment of value by taking advice and researching the area. You should approach it in the same way in Mallorca.
  • Similarly, valuations do not assess the investment potential of a property. They are concerned with ensuring the banks lending is safely covered by its current value. Assessing the future investment potential requires more research and judgment.

So overall, the older a valuation is the less relevance it has and valuations going back before the summer of 2008 should be largely disregarded. Recent valuations are a useful guide as to current value but in order to assess the future investment potential you need to take advice and research the locality of the property you are considering.

Part of our role is to give our clients objective advice on value and investment potential. Contact us for further information.

Costs associated with buying and owning property in Mallorca

July 20, 2009 // Posted in Property finance in Mallorca (Tags: , , , , , , , , ) |  No Comments

This article is to offer some guidance on the costs you should consider when buying a property in Mallorca. Please note these are for guidance only. Your personal tax situation will depend on your status and you should always seek the advice of a professional in matters that are of financial importance to you.

Purchase taxes and other one off purchase costs

As a guide you should allow 10% of the final purchase price to cover purchase taxes, legal and other associated costs. Most of this (7%) is property transfer tax. For more detail on these costs please see our main website feature on buying a property in Mallorca.

It is worth noting that much of these purchase costs can be off-set against any future capital gains tax when you come to sell the property. This is also noted in more detail on the same page on our main website.

Ongoing costs

There are basically four areas of cost to consider:

1) “Property Income Tax”.

This is a tax for non-residents and is based on “assumed income”. The tax is calculated at a rate of 25% of the assumed income which is obtained by multiplying the cadastral (land registry) value of the property by approximately 1.2%.

By way of example, a property with a registered value of Euro 400.000 would give rise to a tax liability as follows:

Taxable base (assumed income) : 400.000 x 1.1% = €4,400
Tax on that income at 25%: €4.400 x 25% = €1.100

2) I.B.I . (Impuesto Bienes Inmuebles)

This is a real estate tax levied by the local town hall to cover services to the municipality. It is much like the UK Council Tax. The amount varies by area but is usually less than the council tax would be for an equivalent property in the UK.

There used also to be a wealth tax but this has been abolished – see : abolition of wealth tax in Mallorca.

3) Utilities. Gas, water, electricity and phone services will obviously vary according to usage. The cost “per unit” is generally marginally higher than in the UK and, whilst heating costs might be lower, air-conditioning and pools can consume more electricity than you are used to.

To be on the safe side estimate overall costs to be a bit higher than you would estimate for a similar property with similar usage in the UK. It should also be possible to get copies of previous bills for a property you are buying in order to plan budgets more accurately.

4) Maintenance. It is best to set this around the same level overall as you would expect in a similar property in the UK.

If your property is in a community development with communal facilities such as a pool maintenance will be covered within a monthly community charge. These vary according to the facilities provided and the standard of upkeep. Generally they are Euro 100 to Euro 350 per month.

When you are considering buying a property in a community you should be able to get an exact figure in advance.

Further useful information:

≈ Tax and finance advisers in Mallorca
≈ Lawyers in Mallorca

Capital gains tax in Mallorca: off-setting buying and selling costs on Mallorca properties

April 28, 2009 // Posted in Property finance in Mallorca (Tags: , , , , , , , ) |  No Comments

This article is to highlight a point that many people do not realise relating to the cost of buying a property in Mallorca. Overall the costs are higher than in the UK. Mostly they are made up of taxes, then there are legal costs and notary fees. In all we recommend you allow 10% on top of the final agreed purchase price in order to cater for these costs.

In addition to this, you should consider the future costs for if and when you come to sell the property i.e. the estate agent fees and capital gains tax. Estate agent fees are generally 5% or 6% of the sale price – again, a lot compared to the UK, but unavoidable if you want the best agents with the biggest client-base working to sell your property.

There is, however, a very important factor that mitigates significantly against these costs – many of these costs can be offset against the tax you are liable for on any capital gain you make when you come to sell.

Specifically, all of the buying costs including taxes and legal costs can be offset against capital gains tax. So can the estate agent fees on sale of the property.

It is also possible to offset the costs of substantial home improvements. This would not apply to simple redecorating but an extension or refurbishment is likely to quality.

The capital gains tax rate for non residents is now the same as for residents at 18%, so more or less in line with the UK. All-in-all, if buying, selling and any improvement costs are offset against this as above, the cost of buying and selling property in Mallorca is probably about the same, or slightly less, than in the UK.

In order to do this it is essential that you keep invoices and receipts for all payments. This is also another reason to have good tax advisor as they will be able to tell you exactly which costs you can offset and which you cannot. They will stand far more chance of saving you money if you speak to them at the outset when you purchase your property rather than as an afterthought when you come to sell it.

≈ See more on tax advisors and accountants in Mallorca

≈ See more on the buying process and associated costs

≈ Capital gains tax in Mallorca

Latest Mallorca property market update – April 2009

April 16, 2009 // Posted in Mallorca property market, Property finance in Mallorca (Tags: , , , , , , , , , , , ) |  No Comments

This months update is a little late due to us wanting to get the new Mallorca Property Partners website launched. It is online now though. The market has certainly moved on a bit since out last report although the key predictions and underlying trends observed have not changed at all.

It is well worth reading as it puts current developments in the market into context and gives further insight into the best strategy to adopt if you are to stand the best chance of getting a good deal on the right property in the current environment.

As always your comments and questions are very welcome. You can view the report by clicking the link below.

≈ Mallorca Property Partners market update report, April 2009

What exactly is a Mallorca property bargain?

March 14, 2009 // Posted in Mallorca property market, Property finance in Mallorca (Tags: , , , , , , , ) |  No Comments

The term “bargain property” is a slightly ugly one for estate agents in Mallorca. For a long time the island has enjoyed a privileged status as one of the most desirable locations in the world, and property prices have increased solidly and continually for many years.

I agree it is a rather down-market “salesy” term and not best suited to the property market here, and the desirability of property in Mallorca has not diminished at all. However, in an environment where properties are generally negotiable when this was not previously the case, and where there are some good properties in good areas showing substantial reductions, the term bargain is reasonably apt, and it is clearly what most active buyers are looking for at present.

Having said this, there seems to be a degree of misguidedness amongst some buyers as to what represents a “Mallorca property bargain”. Many are judging opportunities solely on the reduction in asking price and are discounting properties that have not been reduced by a substantial amount.

This is a rather superficial way of judging the true value of a property and runs the risk not only of missing the best opportunities, but even worse could land the buyer with a “duff” investment I.e. one that does not appreciate significantly even when the economic environment does, eventually, start to improve.

This is for the following reasons:

  • Some properties are being put freshly onto the market at very competitive levels. So there is no reduction to show but the asking price is low from the outset in comparison with similar properties in the area.
  • As a generalisation, the owners of the better properties in the best areas will know that they have a good long-term investment and will tend to reduce the value by smaller amounts (if at all). However, it is these properties that will escalate most quickly and by the biggest percentage when property markets turn around from the current slowdown. So a bigger saving on a property in a less desirable area does not equal a better investment – it could well be the opposite.
  • Some owners choose not to reduce the asking price, but will still negotiate a substantial reduction if they receive a serious offer. Others might not. So our advice is always to focus on the properties that you find most attractive and, if you are not able to agree a price that you are comfortable represents a good investment (a much safer and more sensible terminology than “bargain”), then you must be prepared to walk away.

Overall it is important to realise that Mallorca is proving resilient in the current global recession when compared with other location in the Mediterranean and with other prime international property locations. Take a look at Dubai for example, or Eastern European countries that were previously seen as great places to invest. Mallorca has held up far better than most, if not all, the investment alternatives.

So buying any good property in Mallorca at the current time and, therefore, at a favourable price, even if it is not the kind of dramatic reduction seen in many other areas including the UK, is likely to prove to be one of the best property investments you could make.

You could readily argue that all such purchases are bargains as one thing is certain. When the turn-around does come the demand that is currently on-hold for Mallorca properties will come back very quickly and prices will start to escalate again.

All the properties we list on this website as “Mallorca property bargains” are good properties in good locations. They are selected from properties that our estate agent partners across this island highlight to us as being interesting. Some of them are new or in excellent condition and others require modernisation or refurbishment, but all have good investment potential. So these will give you an idea as to what is available and the kind of price reductions that are being made in some instances.

Please note however that we are only listing properties that have been reduced in price in the “bargains” section, and many of the other properties we have selected to list also represent exceptional deals and potentially equally good investments.

If you are interested in finding the best properties email us with your details and we will pick out a selection based on your criteria.

The following articles might also be of interest to you in this context: