Mallorca property market – outlook for 2020
The Mallorca property market has consistently shown itself to be one of the strongest in Europe over recent years. Here’s our start-of-year overview of the market and where we think it’s going from here.
A quick look back
The subprime mortgage crisis that first manifested itself in the US in 2007 was a seismic event. Excessive risk-taking by banks led to the global financial system collapsing close to a point of total disintegration. The ensuing global downturn earned the title “the great recession“. Property markets were caught right in the centre of the maelstrom. Nothing escaped, not even the most sought-after, prime locations.
The recession lasted for several years and the underlying effects are still with us. But one of the most surprising things was how quickly, and how strongly, these prime location property markets bounced back. But within this recovery, these markets changed complexion somewhat, Mallorca included.
To a large extent this rapid recovery was down to the low cost of finance. It would be wrong however to say that this renewed buoyancy was fuelled by cheap mortgages. The cavalier days of highly leveraged purchases, holiday rental apartments being bought on a 90%, 100%, 110% plus loan to value, were gone. At least for the time being. Rather, it was part of a broader financial and economic equation. Some of the huge amount of liquidity introduced into global markets was finding its way into property. The level of borrowing on property purchases is generally less than it was before. Mortgages are at lower percentage levels and, in many instances, have been taken out for the purpose of smart financial planning, as opposed to being essential to the purchase.
Prime locations have prospered
So prime property locations have prospered and Mallorca has been at the top of the list – a wonderful, easy-to-access place to buy a second home and a safe haven in which to invest your money. The focus has been on the established prime locations such as Bendinat, Puerto Andratx, Pollensa. Prices have risen, infrastructure and leisure amenities have been upgraded. Remaining plots have been been, or are being, developed. And because there are so few new sites available, there has been significant redevelopment, upgrading and modernisation of existing properties.
There has also been a knock-on effect on close-by locations. Places that were not so recognised have become sought-after. Cala Major and San Agustin for example, old and previously somewhat rundown seafront resorts immediately to the west of Palma, have seen a rapid increase in the purchase and refurbishment of seafront properties. Restaurants and bars have been upgraded and they are now chic, contemporary destinations.
Sol de Mallorca, situated between Santa Ponsa and Magaluf was, for many years, in the process of being developed but not really “on the map”. Over the past few years however it has matured. Apartment developments and villas have been completed, the infrastructure is all there and it is now firmly on the “sought-after” list.
Heading away from the coast, prime countryside locations have seen the same effect. Remaining available plots have been developed and older properties in good locations have been renovated and upgraded.
Forecast for the Mallorca property market in 2020
In the latter part of 2019 the market cooled off slightly. This has not been dramatic but, looking ahead, we expect more of the same.
- Prime locations prices had moved up too far, too quickly in relation to other sought-after locations across Europe. We don’t think it was dramatically out of kilter and it’s natural for any market to steady itself if it has risen quickly.
- Brexit. Much as we hate to mention it, Brexit is a factor. It has dampened demand from the UK and there is still some uncertainty as to how Brexit will pan out. However, the Spanish government has made it very clear that they will continue to regard the British as close friends who are very welcome. The British contribution to the tourist industry and the property sector in Spain is huge. It’s a very important part of the Spanish economy. It seems likely therefore that things will settle down and pent-up demand from the UK will re-establish itself over time, possibly quite quickly once the political jockeying settles down.
- There are question marks over the health of other key European markets; most notably Germany as Germans are key buyers in Mallorca. The impact has not been dramatic to-date.
The year ahead
So, while the Mallorca property market continues to show underlying strength, we expect prices to increase at a lesser rate and potentially flatten out for a while. There may be some rationalisation too, with more ambitiously priced properties coming into line with the general market. At this stage there is no indication of any significant pullback being on the cards.
Leading on from this, Mallorca is quite a small island. And the prime locations for international buyers make up a relatively small percentage of it. So the stock of available properties is similarly small. With buyers coming from across Europe and other parts of the world, demand for properties in these locations is usually exceeds supply. This, coupled with there being less highly-leveraged mortgage funding in the market, should underpin the market’s resilience in years to come.
Away from the prime areas, increases have been less and properties continue to be more affordable. Media coverage of Mallorca often gives the impression that it’s become a Millionaires’ playground, exclusive to the wealthy. But that is not the case. Recently we sourced a good southwest coast apartment for a client for less than 200,000 Euros. It was an exceptional find. If you want sea views or to be next to the beach you’ll likely be looking at more. Location, as always, is key and prices vary significantly from one place to another. With this in mind however, there’s still scope at lower budget levels and, as noted above, the most exclusive locations represent a relatively small part of the island.
And we’re pleased to note that, while the character of the island has inevitably changed over time, it still retains the essence and charm of the place that has attracted people for so many decades.
More people are relocating to Mallorca
Another notable trend has been the increase in the number of people looking to relocate permanently to Mallorca. In many such instances, a location slightly away from the prime coastal spots is preferable. Another significant draw for people to relocate to Mallorca is the international schooling. Both the quality and the number of international schools in Mallorca has increased in recent years, giving parents more choice both in the type of education they can decide on for their children and the location they can choose to live in.
Summary – what does this mean for property buyers?
The property market in Mallorca has been on the up now for some years. In our view it will level off somewhat and possibly flatten out for a while. Prices could even fall but there is no indication of that at present. The key underlying point is that Mallorca has, for decades, shown itself to be one of the most resilient property markets in the world and there is no reason to think that this might change. So people looking to buy a holiday property, second home, or permanent home in Mallorca can feel confident they will be buying into a market that has consistently proven itself to be solid and safe.
Realistically, it’s a “sellers’ market” at present, which means so-called bargain deals are pretty much non-existent. Conversely, some properties, particularly in prime locations, are on the market at rather ambitious prices. However, many are not. Buyers need to assess the realistic value of properties then use this as a reference for negotiating a sensible price and getting the best deal. Admittedly this can be difficult as there are no readily available stats at a local level. It is one of the many areas where we can provide valuable assistance.
Research is key
There is no substitute for on-the-ground research. The more you can do the better. Desk and computer-based research is useful to an extent. But inevitably, properties are presented in their very best light. It’s remarkable how close to Olympic-size a plunge pool can appear when photographed from the right angle! In our view, the best way to be sure your valuable viewing time on the island is spent on the right options – those that tick all the right boxes and don’t have any unacceptable downsides – is to have an impartial representative, such as ourselves, do it for you.
If you would like to discuss any aspect of the Mallorca property market or purchasing a property in Mallorca, please don’t hesitate to contact us by phone or email.
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Photo credit. Property market – Photo by Lukas from Pexels