Mallorca property market report - April 2009

The property market in Mallorca has picked up somewhat since our last market report in February. There are a number of factors behind this, although we don't yet feel this is a sign of an imminent economic recovery or return to increasing prices.

We had predicted there would be an uplift in activity in the market as we come into the Spring, and this is indeed the case. The factors leading to this are quite straight-forward:

• There are investors in the market. Both private and institutional investors are taking advantage of the good deals that are available to make investments in Mallorca properties. Funds held in the bank are generating very low returns, the stock market is dangerous, and property prices are low. This makes property in a "safe" market like Mallorca very attractive relative to other investment opportunities.
• Private buyers are also seeing the opportunity. People who have the ability to raise the funds to buy a property for their own private use are seeing now as a good time to buy.
• People are getting fed up with hearing about the recession. Many people are simply fed up with recession talk and want to get on with their lives. For some people this means getting on with plans to buy a property in Mallorca.
• More confidence in the market. There is increasing confidence that "things have bottomed out" and prices will not fall much further.
• It is Spring: The main season in Mallorca is under-way. January and February are always quiet months and sales increase from Easter onward. This year is no different, although the level of activity is lower.

With these points in mind, do we think we have now reached a point where the market is turning? Our view is that we have not. The recent increase in activity and sales is an indication that Mallorca is a strong market - there is a considerable "latent" demand, some of which is now coming back on-stream. But the level of sales needs to be kept in context and is, as noted above, lower than at this same time in previous years. In more detail ...

Have things "bottomed out"?

In terms of the global economy we are not convinced things have bottomed out. While there are many politicians and economists say they have, a more detailed study of global economic sentiment indicates that the rate of slow-down is decreasing but has not yet reached a "floor".

So we appear to be approaching a bottom, but it is not yet clear when it will actually be reached. It seems likely it will be later on this year or early next in the US market but could take longer in Europe.

We do believe however that Mallorca is protected to some extent against the continuing effects of the slowdown. Whilst the Spanish economy has severe problems to face, and the tourist season in Mallorca this year is likely to be relatively slow, Mallorca does not have industries that are crashing into the ground as is the case in many other countries.

Will prices fall further?

We think prices in Mallorca will probably drop slightly further on average - but not much. Even if prices in the UK and on the mainland continue to fall Mallorca will fall by less as it is a more attractive place to have money invested in property at this time.

The key thing to bare in mind however is the variance in the degree of negotiating scope from property to property. It is essential that opportunities are viewed on a case-by-case basis as some of the opportunities available now are as good as you are likely ever to see in Mallorca.

For this reason, if you are seriously interested in buying a property in Mallorca, we strongly recommend that you do not postpone your search completely in the belief that prices will fall further. Rather, you should put in a "watching brief" with MPP and we will highlight good opportunities as they come up. We recommend that you read through the previous market reports and articles on this subject if you have not already done so (links to the articles are provided above in "Related information").

What about the exchange rate?

The general view is that the pound will improve versus the Euro and might possibly increase to a level of Euro 1.25 / 1.3 by the end of this year. This would make a significant difference to buyer's purchasing power if using Sterling funds.

So you may be better off waiting to buy later in the year. But you should also be aware that some of the deals currently being made are at price reductions that outweigh the fall in the pound and are unlikely to be bettered later in the year. So as above, you are best-advised to give MPP a watching brief to be sure you don't miss out - the best opportunity might come along later in the year, but it could also be out there in the market right now!

You might also consider taking a mortgages where all, or most, of the funds you are putting down on the property can be held in Sterling until a later date. See the link in "Related information" for details on this.

Are mortgages becoming available again?

The banks are giving out mortgages but the conditions they will loan against are more restrictive than before the economic crisis. As a rule you will not be able to borrow more than 70% of the total amount of the transaction value (usually this means the final sale price of the property). You will also need to show documentation that shows a solid financial history sufficient to cover the mortgage payments.