October 2009 Mallorca property market update:
Where, when, how to buy

Mallorca property market update

The latest property market statistics and a depressed Spanish economy continue to cast a gloom over the Spanish property market.

Mallorca is escaping this to some degree but prices are still under pressure even in this prime location. A good time to buy? ... yes, if you are smart and buy the right property in the right place!

Little has changed since our last update on the state of the market for properties in Mallorca. The global recession may be drawing to a close but most people would agree that things are not exactly looking rosy. The recovery from recession is most likely going to take a long time, and there is real possibility of a relapse along the way. The UK and Spanish economies in particular have a long haul ahead.

Consequently property prices in Spain are still under pressure, and despite the fact that the Mallorca property market is proving more resilient than most other locations in Europe, it is most unlikely there will be any quick rebound in sales volumes or prices.

There are plenty of market statistics and commentaries that make these points very well, and previous Mallorca Property Partners updates give a more on-the-ground view as to how the market is evolving (see MPP: Mallorca properties market reports). There are also plenty of commentaries on why the Mallorca property market continues to have strong prospects for the future, and why it is still regarded as one of the most aspirational places in the world to own property.

Generally however market reports are of little practical use to prospective buyers, giving little indication as to whether this is the right time to buy, and how best to go about it. So this month's update tries to help with some practical "when, what, where and how" guidelines to investing well and getting the right property.

• Average prices in Mallorca are not going up and this is likely to be the case for a while to come. Neither are they likely to go down further from here-on in good locations.
• This is, however, a references to average prices and there continues to be considerable variation in the degree to which people will negotiate. Average price statistics do not give any indication of this, but it is in this variance that most of the opportunities lie. So it's no use relying on statistics as an indicator as to when you should buy - you need to get into the market and find the good opportunities.
• If there is a relapse into further recession (the so-called "double-dip") there will be more opportunities to negotiate greater reductions. If Europe moves into a more solid recovery there will be less. Either way there are opportunities out there right now and it makes no sense to wait just in case average prices fall further.
• In simple terms, the best time to buy is when you find a great opportunity!

• Buying well is not about being lead by price reduction deals. It is about being clear about your objectives and buying a property that meets them. Unless you are an opportunist investor and not intending using the property personally, remember why you are buying it in the first place and don't get tempted off-course - otherwise you might well end up with a home you are not happy with.
• The more attractive properties in the most attractive areas will tend to offer less by way of price reductions. Regardless of this the smart money always goes into prime properties and prime locations - in times of recession they decrease in value by less, and in better times they increase in value by more. There are parts of Mallorca that were being promoted as "up-and-coming" 10 years ago that are still yet to "up-and-come". Unless you have a long-term perspective it is better to stick to the more in-demand areas even if they do cost more to buy into.
• Look into locations at a "micro" level. That is to say, don't generalise your targeting to certain areas or towns, but seek out the good locations within these places. If you don't know the island well, get advice from someone who does.
• "Prime" does not, necessarily, mean up-market or expensive. The east coast of Mallorca for example has been hit hard by the recession, but there are pockets that are proving more resilient where sales are ticking over and which are a solid bet for the future. Properties can be bought here for considerably less than the more up-market resorts.
• "Prime" also relates to certain in-demand features such as sea or mountain views, good outside space, being in the best communities and so-on. Properties with these attributes stand to do well in the future whether the purchase price is a couple of hundred thousand Euros or several million.

• Judge potential deals by the relative prices in the area, not by the percentage price reduction. A 20% reduction is not so attractive if there is a comparable property close-by at a 20% lower asking price. Real values can be difficult to assess but it is usually possible to find out how much properties in the area have been selling for over the past year or so.
• Similarly, don't necessarily be put off if a seller proves inflexible on price. Some buyers will not consider a deal unless the owner knocks a substantial amount off; but if the property is already below its realistic market value or, for example, offers a great renovation opportunity that will add substantial value, they would still be getting a good deal. A coastal villa in Porto Cristo recently sold very close to its asking price. The buyer made a low offer and had to increase it several times without any compromise being shown by the vendor. The property is currently in the final stages of renovation and the buyer should see a very healthy six-figure increase in the current value when it is finished. The buyers were focused on the opportunity, not on having to get the upper-hand in the negotiation!
• As noted above, you can take your time to search for the best opportunities, but when you find one that is right be prepared to move quickly. If you think it is a great opportunity there is a chance someone else will too. The better the opportunity the more likely this is to be the case. For this reason it is sensible to have your finances in order and to have a lawyer on board (see Lawyers in Mallorca).
• Consider taking a Euro loan. The poor standing of Sterling at present is a key factor depressing the market. When Sterling does improve it will bring more buyers back into the market and reduce the number of opportunities. By holding your funds in Sterling against a Euro loan you can effectively put-off the currency exchange (see Sterling deposit mortgage for Mallorca properties). The Euro mortgage will cost around 3% of the loan amount to set up and there are obviously interest payments to make, but if you need to take a mortgage anyway then these are not additional costs. Even if you do not require a mortgage it is likely the amount you save by waiting until the exchange rate improves will be more. They key benefit in both instances is that you can buy now before the market is bolstered by a stronger pound.