Mallorca Property Partners 4th Quarter Update 2010: do prices
have further to fall?

And you need to be confident you are getting a good price. This is often difficult to judge as there can be a lot of variance in the asking prices of similar properties. The reason for this is the high proportion of properties in Mallorca that are second homes or investments, a factor which exaggerates some asking prices higher and others lower. By way of illustration:

• A person who wants to sell their holiday home but is under no pressure to do so, may stick with a price that would have been more realistic before the recession. They are relaxed about waiting for the "right buyer". If that does not happen in the short-term they are happy to wait for the market to improve. The property is not their main home so there is no practical requirement for them to move and if they wish, they can rent the property out to cover its costs. This keeps some prices above what would be considered realistic in the current market.
• Conversely, if a person is under financial pressure, the fact that the property is not their main home means they can get some cash in quickly by accepting a price below even current market values in order to generate a quick "opportunist" sale. This pushes some prices below what would be considered realistic in the current market.

This means the owners circumstance is a far greater influence on price in the current market than it would usually be. Furthermore, property owners do not operate by one uniform code. Some will set high asking prices because they expect to negotiate. Some will set lower asking prices but be less prepared to negotiate.

On this basis, the answer to the question posed in the title deserves a more detailed response:

There are two other price related topics I'd like to mention.

Repossessions

Repossessions can be a red herring. If you reflect on the fact that many properties were bought on excessive loan-to-value ratios as mentioned above, you realise the banks would need to sell these properties over their current market values to recoup their capital.

While the banks are discounting properties in an attempt to sell them, the reductions have been too small and too slow in coming to make many of their properties competitive.

Furthermore, repossessions tend to be focussed in the less good locations. This is a generalisation, but more often than not you will find better deals on higher quality properties in the main resale market.

The Eurozone crisis

When the Euro weakens, the cost of properties in the Eurozone becomes less in other currencies. By the same token, the value of properties already bought by people from non Euro countries also reduces in their home currency. The uncertain future of the Euro is, therefore, a concern to anyone from outside of the Eurozone thinking of investing in Mallorca.

Ultimately however, the price of prime properties in Mallorca is set by market forces balancing the available supply with a level of demand that is set internationally across different currencies. This is only relevant to properties in the international sector of the market. With very little further construction going on, the supply of such prime properties is based largely on what is here already and could readily be soaked up with just a small increase in demand.

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