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Latest Mallorca property market update, June 2012

May 17, 2012

Property prices in Spain remain under pressure, making it difficult to know whether to buy now or wait for a better deal.

Mallorca property prices year to March 2012

Current market stats do indeed indicate that lower prices are on the way. The latest March Index figures from Tinsa, a specialist in real estate valuation in Spain since 1985, show a year-on-year fall in property values of 11.5% – higher than the same figure for the previous year. The cumulative fall since the market peak in December 2007 is 28.6%.

The report breaks down into broad regions and shows the Balearic and Canary Islands having fallen by 9.8% for the year and 25% since the peak.

To a large extent the fall of recent years is a correction to a market that was seriously overheated. The international financial crisis has been a catalyst for this. Had the crisis not happened the Spanish property market would still have run into trouble.

Prices need to find a realistic sustainable level. For the domestic Spanish property sector, this means a level that creates sufficient demand based on the incomes people earn supplemented by sensible, sustainable levels of borrowing. Clearly there are issues in these respects within the Spanish economy, indicating domestic sector prices have further to fall.
Mallorca property price index from 2001

Prices in the international sector work differently in a number or respects. A far higher percentage of the properties are second homes – i.e. luxury items which may be important, but are not actually essential to the owner. The prices are set according to what people in different countries are willing and able to pay. Some of these buyers are already working in Euros. For others, the buying power of their own currency is an important part of the equation.

In Mallorca, the international sector is disproportionately important and, within this, the current situation depends very much on the type of property and location. The market stats are of little help at this level of detail, but we can make some observations:

  • Lower priced properties in the international sector, most obviously those in package tour resorts, will have fallen more than average. Values in these locations were fuelled by easy credit. Easy credit is no longer available so the volume of potential buyers is limited compared to what it used to be. Prices are likely to remain under pressure for some time, with some studies predicting the average will fall by as much as another 30%.
  • Prices of mid to high-end properties in the international sector have fallen less. Owners are generally less reliant on high loan-to-value finance and the supply-demand equation is more supportive of prices. Consequently there are indications that sensibly priced properties have reached a floor. Many owners who are not under financial pressure are now happy to wait for the market to stabilise, even if it takes a few years to do so, rather than negotiate further substantial amounts off the price.

Having said this, there continues to be considerable variance in owners’ expectations. Inevitably, it is the more competitively priced properties that are selling at present, but it is important to distinguish “bargain” discount offers from good investment opportunities. It takes a detailed knowledge of the market to do this with any confidence.

With this in mind, it is apparent that there are buyers actively searching and waiting for the right opportunities. Consequently, the best deals tend not to hang around and you need to be well prepared to stand a chance of securing them – see 5 buying tips for the current market.

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Postscript: Our September update is now on line. Please see: Mallorca property market update, September 2012.

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