While the past few years have shown it’s not always true that the rich get richer, it’s certainly true that clever investors and wise money chase value – and what could be better value than being able to buy Mallorca real estate luxury at a knockdown price?
For most of us the words “knockdown price” would be the catch here. One person’s million disposable euros is another’s lifetime income. But when there’s a one-off chance to buy for €2 million a villa that would have cost €3.5 million in 2006, there’s certainly no argument about value.
Which of course is why – despite the endless cycle of turmoil that has become the daily staple of the financial markets – the luxury end of the Mallorca market can still defy all global trends and report that 2011 was not just an acceptable year, but a good year.
“In our experience it’s volume in the middle market, say between €500,000 and €2 million, that has been most affected by the financial crisis”, Michael Cunnington of estate agents, MJC Associates, who partner with Savills, told abcMallorca. “But beyond that I would say there has been considerable activity at the upper end of the market – so I guess the message is that the rich are doing alright and are still looking for somewhere that’s good value to park their money.” Stephen Dight of Mallorca Sotheby’s International Realty agrees, and says the market has become noticeably polarised.
“At the top of the market there is a scarcity of well-presented and correctly priced property. So when something in this category comes onto the market it sells well and quickly. More affluent buyers know the market may well have bottomed – so you have to act quickly if you want that something special. “The middle and lower ends of the market are more challenging. Yes, vendors are being more realistic, but offers are often falling well short even of realistic asking prices.”
In the background, two significant new developments should help make the Mallorca property market even more attractive to prospective buyers:
• The local government recently announced a tax reduction from 8 percent to 4 percent aimed exclusively at buyers of new-build properties that will continue right up to December 31, 2011 – the aim being to stimulate sales of new stock already on the market
• The Sierra Tramuntana Mountains have just been declared a UNESCO World Heritage site, which has two big benefits. The first is that almost 50 percent of the island’s natural beauty will now be protected. And the second, that because they now know new development will be restricted, well-heeled purchasers will be more inclined to buy in those areas
“We would agree that the top end of the market continues to perform well throughout the island”, said a spokesperson for Engel & Völkers.
“It certainly will be beneficial if the government’s tax reductions boost the new-build end – and of course UNESCO World Heritage site status for the Tramuntana is yet another seal of quality for the island.”
On the national scene there have been moves too to improve Spain’s economic prospects by trying to dispel persistent doubts about its creditworthiness.
Despite a general election on November 20, the main political parties – the Socialists and the centre-right Popular Party – came together to agree ambitious plans which involve changing the constitution so that it requires governments to keep debt and budget deficits below specified levels.
The changes will legally commit Spain to abide by European Union limits – currently 60 percent of gross domestic product (GDP) for accumulated debt, and 3 percent of GDP for annual deficits – as and from 2020.
Since the start of the economic crisis, Spain’s annual budget deficit has looked like this:
• It peaked in 2009 at 11.1 percent
• It’s on target to fall to 6 percent this year
• If current trends continue, it should be down to 3 percent in 2013
“We believe that sooner or later there will be some common discipline for budget deficits across the EU”, forecast Alvaro Nadal, spokesman on the economy and employment at the Popular Party. “The idea is to prepare the Spanish economy to be located inside what is emerging as a new European system of governance – as an EU which is highly financially disciplined.” This is undoubtedly an attempt to reassure sovereign bond market investors, some of whom have claimed Spain will need to follow Greece, Portugal and Ireland in seeking a bailout from the a combination of the International Monetary Fund and the EU – even though Spain’s public debt as a percentage of GDP is lower than Germany’s and lower than the EU average.
Far from the bond markets, but on perhaps a more practical note in terms of employment, the parties also agreed to extend apprenticeship contracts, previously available only to under 25s, to workers under 30, until the end of 2013.
So real steps are being taken in Madrid to shore up the Spanish economy – while locally steps are being taken to boost the new-build sector and restore confidence in the lower to middle levels of the market.
An Engel & Völkers review, meanwhile, seen by ABC Mallorca, shows just how well various different locations are doing …
Palma Old Town: Buyers are a mix of Swiss, Scandinavian, German, Austrian and British, with well-located penthouses with sea views, priced between €1 million and €3 million “moving”.
Palma Surrounds: Near the Tramuntana, foreign buyers looking for an “authentic Mallorcan lifestyle” are paying from €2 million to €6 million for properties surrounded by protected land.
West: Deiā is still “extremely desirable”, particular at the top end of €3 million to €4 million.
South-west: Here the average sale price stands at around the €1 million mark.
North: There’s “a great deal of movement” here – with sales being made at all levels, from €200,000 to €5 million plus.
North-east: Sales at all levels from €200,000 to €2 million.
South-east: Demand here is for countryside fincas and first-line properties, with most sales between €300,000 and €900,000, with a few between €1 million and €2 million.
Inland Mallorca: Here the average sale is around €1.3 million – a small price to pay for your own piece of Mallorca luxury.