Signs of Recovery at the Mallorca Property Market

Investors are back on the prowl for property bargains. Is that an early omen of a market recovery – or simply a sign of an increase in distressed sales, wonders Peter Cluskey? Written in 2009.

Summer makes everyone more cheerful: the weather improves, tourists and second home owners start to re-appear, the restaurants and pavement cafes are buzzing – and best of all, the local economy gets a boost and the property market picks up.

At least that’s how it is most years. But 2009 is different. The entire world is on tenterhooks waiting for the first signs of economic recovery. So although things this Summer may look much as they normally do, there’s a lot riding on what’s real … and what’s wishful thinking.

The main cheerleader for an early recovery in the Spanish property market in general is Gonzalo Bernardos, Professor of Economics at Barcelona University, an expert in property economics and a man known for his pithy no-nonsense analysis.

He issued a new report recently which concludes that we’re now at “the beginning of the end of the worst period for property sales since the crisis began”, not exactly a prediction of a booming year – but enough to prompt El Mundo to pen one of its first optimistic editorials on the outlook for the economy in almost two years.

Bernardos believes that the market will come back to life this year, with more sales than in 2008, for five key reasons:

• Interest rates are lower
• House prices, on average, have fallen back to 2003 levels
• Banks have started to lend more
• Many people planning to rent are deciding to buy because prices have fallen
• And investors are coming back – because they see there’s value to be had

It’s that last observation in particular that will gladden the hearts of estate agents who – if they’re being candid rather than desperately trying to avoid “talking down” the market – will admit that they’ve seen buyers disappear and sales fall substantially, even here on Mallorca.

One of the Balearics’ most experienced market-watchers is Andrew Spence of real estate developers, Bendinat Group, who predicts, for instance, that sales across the island this year could be down by as much as 25 or 30 percent, depending on the property and its location.

Reviewing the market since it got off to its traditional start at Easter, Spence has already identified one major shift: Germans have replaced the British as the biggest buyers – not because the Germans are buying more, but rather because the British have virtually stopped buying.

“Eighteen months ago, 60 percent of our buyers were British, whereas now that’s only around 10 percent”, Spence told ABC Mallorca. “German buyers used to represent about 30 percent of purchasers, but that’s now up around 70 percent. And in addition, we’re also seeing some Scandinavian buyers, a few Russians and the occasional buyer from the Emirates.”

Interestingly, he too says investors are back on the scene, watching for bargains.

“The real bargain-hunters are looking for value as a result of distressed sales, and they can be found”

I came across a property recently worth €500,000 but on the market for €350,000 – and it was sold in two days. But that’s certainly not the norm; it’s a rarity.”

Eric Lacabarats of developers, Espacio, agrees that German buyers are now the most important market segment. “In general, the Germans are buying and their sales are remaining more or less constant – whereas the British aren’t buying at all, or very little.”

He’s also cautiously optimistic for 2009 because he too sees investors coming back with money to spend. “We’re seeing interest from countries where we haven’t had clients before, such as Switzerland, Lichtenstein and Luxembourg, so clearly people are looking outside the usual tax havens for investment opportunities. Investors are saying, ‘I have €20 million to spend, what can I do with it?’ … and thinking of Mallorca.”

In terms of thinking innovatively about how to boost the market, Espacio recently started a new incentive scheme which offers customers 10 percent interest a year on any deposit they put on an apartment in GreenPort, their luxurious new development planned for Santa Ponsa.

The scheme, which is covered by a bank guarantee, means that if a buyer puts a €100,000 deposit on a unit to reserve it now, 12 months from now that €100,000 will have become €110,000, giving the customer a bigger deposit – or a 10 percent discount on the purchase price.

But how long will it take for the market to recover fully? In its Spring report, published in April, Engel & Völkers anticipates that the financial crisis may continue to slow the market for another 12 to 18 months.

However, it notes as well that Mallorca ranked fifth in The Financial Times list of the ten safest locations worldwide in which to invest in property during 2009, because of its balance between supply and demand. The over-supply which has characterised the market in many parts of the mainland, particularly the Costas, has never been a problem here.

The report observes: “Mallorca’s luxury second-home market has rocketed in the last decade, making it a prime destination for investors. And in spite of the impact of the global financial crisis, investing here can still deliver solid long-term returns …

“Investors who in the past may have found the island out of their price range, may now find something to match their budget.”

As Summer kicks off, there’s no doubting the optimism amongst estate agents and developers, who know there’s pent-up demand and plenty of property to satisfy it. The question now is how many potential buyers will put their money where their mouths are, and take a calculated risk on the market having bottomed out?

As another seasoned Mallorca real estate agent, Michael Cunnington of MJC Associates, who work with Savills, observed after Easter: “Most agents I’ve spoken to recently are reporting an increase in activity – although, generally speaking, the clients are looking, not buying.” Let’s hope that’s about to change.