Balearic Islands Property Market Report by local agents

The main objective of this report is to provide a guideline for vendors and potential investors into the current market situation for quality residential property on the island.

This year has certainly started with more activity and optimism for Mallorca’s second home residential market. Many offices throughout the island report a surge of increased requests and visits over the first half and in some areas sales have doubled over the same period as last year.

Since the end of 2008 vendors have had to adjust their pricing strategy to sell in the current market environment and prices overall have reduced by an average of 15-30% depending on location. Today, the general picture is that prices are not decreasing further, that the market is stable with price levels (in some areas) of 6/7 years ago. The increased sales activity also reflects what our customers believe; that prices will increase next year so now is the time to invest.

Still Good Long Term Investment Potential…
According to a property article in the Financial Times (February 5th, 2010) which cites Mallorca as a good place to invest; “You have plenty of choice and, if you do your research, you can find prices of 7-10 years ago. Mallorca will always be popular with affluent buyers. Prices will rise as the economic situation brightens“. Furthermore, The Daily Telegraph newspaper recently rated Mallorca the fourth best place to live in the world *12th April, 2010.

According to local agent Daniel Chavarria Waschke; “The residential market here is stable we are expecting serious buyers who want to invest in Mallorca over the coming months. So the prospects look good and we are cautiously optimistic for the rest of the year”.

Bargain Hunters Beware!
Among the international community, German speaking and Scandinavian buyers dominate the market at this time with less British clients than in previous years. Clients should be aware that more price reductions are unlikely to materialise at this stage as owners have, in most cases, already reduced prices and would rather sit and wait, or rent, than succumb to further discounts.

Mortgages Now Available
Spanish banks have started to lend again to non-residents for up to 70% of the property value and approximately half of the buyers will use the mortgage option for tax relief purposes. Demand is focused on prime property, mainly villas, well located fincas and penthouses, particularly on the seafront or with good views.

New Tax Rates
As of July 1st, the standard rate of Spanish Government Tax (IVA) will rise to 18% from 16% and the reduced rate will rise from 7% to 8%. Property buyers will pay 1% stamp duty plus 18% IVA on purchases of building plots. Buyers of new developments or property, which are being sold for the first time, will pay 1% stamp duty plus 8% IVA. For re-sales, the property transfer tax remains at 7%.

Local & International Investment Continues
International, national and local investment continues on the island with Palma’s new hospital near completion; the Palma Congress & Exhibition Centre is scheduled for completion in 2011; the super yacht designer marina at Puerto Adriano will open in Spring of 2011 and the new Jumeriah Puerto Soller luxury seven star hotel will open in Summer 2011.

A top destination for a quality Mediterranean lifestyle
Over the past 15 years Mallorca has successfully transformed the island from a sun and sea holiday destination to a year round location with one of the most sophisticated infrastructures in the Mediterranean.

The island is easily accessible from all over Europe and beyond with a modern international airport and features a diverse range of landscapes including the breathtaking Sierra de Tramuntana mountain range, beautiful coastal areas, stunning beaches, traditional Mallorcan villages and the elegant capital of Palma. Mallorca offers an excellent range of hotels, restaurants, shopping, a year round cultural and activity programme and an ideal place to practice sports with 23 golf courses and 44 marinas.

Mallorca Property Market by Area

PALMA

Palma City / Old Town & Portixol
In these areas the market boomed until 2006/2007 and since that time prices have decreased by approximately 25%. For example; a 2 bedroom apartment with views will now come onto the market for around 450,000€ and a similar size apartment without views will be around 150,000€ less.

There is always demand for really unique, special properties with either views to the sea or over the old town – particularly those properties with outdoor space. These types of properties are not so susceptible to market changes and generally hold their value. Main buyers at present are: Scandinavian, German, Swiss and Austrian – some of them focusing on prime property of around the 1 – 3€ million price level. They are attracted to Palma because of it rich cultural background and year round activity.

According to local agent Terence Panton “Palma old town provides a unique area of real estate in Europe with a limited supply. The current aggressive “bargain” mentality doesn’t help general negotiations as owners will only reduce to a certain level and then no more. Careful negotiation with a realistic view on pricing means that both parties will walk away satisfied with the final deal”.

Palma City/ Rentals
There is strong demand for long term rentals (minimum of 12 months) and more mid level properties have come onto the rental market as owners do not wish to further reduce their sales price leaving the rental option. More choice means more competition and for this reason rentals have come down over the last 18 months by about 10-15%. For example, a two bedroom apartment in the old town will now yield 1,200€ per month, around 200€ less than in 2007.

Palma City/ Paseo Maritimo, outskirts
In Palma’s Paseo Maritimo area with its spectacular views over Palma Bay and luxury marinas, apartments have reduced by around 25-30%. However, villas with views in the immediate outlaying areas of the city such as Bonanova and Genova are holding their value and owners will only consider slight reductions to close a sale.

Son Vida, Puigpunyent, Esporlas, Establiments
The exclusive area of Son Vida remains interesting for buyers who are looking for a secure, long term investment. Main attractions are its proximity to the historic centre of Palma and the international airport.

Son Vida provides a peaceful environment for the most discerning tastes and features three golf courses and two luxury hotels.

Son Vida has largely been unaffected by the crisis and prices have softened slightly by 10-15%. Although the margin for negotiation has, in some exceptional cases, closed at 35% below the original asking price.Currently, the most sold properties are villas of approximately 400m2 ranging from 1.250,000€ to 2€ million. Villas with sea views always fetch a premium price of around 3-5€ million.

Prices in the surrounding villages closest to Palma have dropped up to 25%. Now, there are some excellent buys for investors who want to enjoy the charm of a traditional village surrounded by beautiful scenery. The most sold properties tend to be family houses of around 900,000€.

Palma Surroundings/ Llucmajor
This is an exciting area south east of Palma, which is ripe for further investment with improved infrastructure and new highways. It is close to Palma and the International Airport and over the past 10 years the area has attracted investment by luxury hotel groups including Marriot and Hilton. Recently, the new luxury boutique hotel, Cap Rocat, opened at Cala Blava.

SOUTH WEST

More sales were made in the first quarter of this year than in the previous three years with good future prospects for the peak buying period. Around 60% of all requests are for properties under 1€ million, although the average sales price remains around 1€ million and the majority of properties sold are villas or penthouses.

There are fewer British buyers than in previous years but those that are here are spending more. The market is currently dominated by German speaking clients.
t be taken literally as valuations fluctuate depending on location, views, construction, quality, sun orientation, property features and land.

South West/ Rentals
Rental yield for a villa varies between 9-12 €/m2 of constructed area. For top quality properties the yield can increase up to 15€/m2 and top properties can still achieve even more. Well appointed apartments with good furnishings achieve approximately 12€/m2 and top apartments with views can yield 15€/m2. Demand for long term rentals is high and the variety of rental properties available on the market has increased over the past 12 months as more owners look to this option as opposed to selling.

South West/ Portals
There has been little change in the market since last year, prices remain stable and because of the density of wealthy clients in this area who can afford to wait for a market upturn, properties have either been taken off the market or gone onto the rental market. Here, villas with sea views command top prices of approximately 2€ million plus. Apartments with sea views will start at 500,000€ upwards and penthouses command premium prices of approximately 1.5€ million upwards.

South West/ Santa Ponsa
This area has been traditionally very popular with the international community and has a good supply of second home properties. People are attracted to Santa Ponsa because of its excellent facilities with four golf courses, good beaches and a fast road into Palma. Prices have come down by an average of 15% since 2008 and now a well located villa with views can average 1.5€ million and apartments with sea views will fetch around 400,000€.

The area around Puerto Adriano is attracting a great deal of attention in anticipation of the new super yacht marina which will open next year. In contrast, up in the hills of Calvia with views across the Bay of Palma, a new exclusive development of quality country style villas has been launched this year with prices averaging 2€ million.

South West/ Andratx, Puerto de Andratx
Sales have been steady since the start of the year with demand for front line villas and penthouses. Prices boomed in this area possibly more than anywhere else on the island and therefore price reductions over the past couple of years have been higher as a result of up to 20% in some exceptional cases. Currently, a well located four bed villa will average 2€ million and a two bedroom apartment with views will cost over 400,000€. Good plots do not stay on the market for long because of the limited supply. Prices range from 300€/m2 to 4,500€/m2.

West Coast/ Deià, Valldemossa, Sóller & Puerto de Sóller
Sales have been generally slower here than in the rest of the island even though there is a great deal of interest from potential buyers. One of the main reasons is that vendors are less likely to negotiate.

For example, in the picturesque village of Deia owners are reluctant to reduce prices because of the cachet associated with owning a home in one of the most desirable villages in the Mediterranean. Here a four bedroom villa with views will command an average of 2.750€ million.

However, in Valldemossa pricing is a little more realistic which provides more scope. Prices range from around 300,000€ for a well presented townhouse to 4-6€ million for a finca estate with land. Main buyers are Germans, British and Scandinavians.

Along the coast to Puerto de Sóller and Sóller there is a similar picture of potential clients making offers way below the asking price. The average price of a villa with views is around 2€ million and these prices have not shifted much in the past two years unless there has been a “distressed” sale. A well located 2 bedroom apartment with views can still command around 430,000€. Puerto de Sóller will come under the spotlight next year when the seven star luxury Jumeirah Hotel opens.

Mallorca Central & Inland
A large variety of property and locations are available here and each case tends to be different. Since 2008 there has been a general softening of prices of around -10 to -15%.

This year there has been increased sales activity in anticipation of future price increases. Inland Mallorca is a large and varied area. However, as a rough guide a well appointed, traditional finca with mountain views will average around 3€ million and a 3 bedroom townhouse will average 450,000€. Typical Mallorcan villages are increasingly popular offering a traditional rural Mediterranean lifestyle. Villages to focus on include: Bunyola, Alaró, Montuiri, Selva and Llubi.

THE NORTH

Pollensa, Puerto Pollensa
The best feature of this area is the amazing contrast between the spectacular mountainous interior and the coastline with its great family beaches. The north offers a year round lifestyle with good infrastructure and excellent sports facilities. A major attraction is the fact that it is not overbuilt and has many protected areas which provide good prospects for the potential investor because of the low level of new construction and strict planning permissions ensuring a good balance of supply and demand.

Prices in the north have fallen in the past two years by approximately 15-30% and are currently at their lowest level in five years. Demand is focused on prime properties such as villas and fincas in good locations. The market for smaller properties, and particularly apartments, practically disappeared at the end of 2008 but now this market sector is starting to move again. This year, sales of apartments have been made across the range from 150,000€ to 600,000€, which is a good general indicator as buyers realise that now is the right time to buy before prices start increasing.

The beautiful Formentor Bay, located at the most northern tip of the island, has long been regarded as a retreat for the rich and famous. The area provides complete privacy and tranquillity and because new development is almost completely forbidden, prices of frontline properties here still retain a premium.

Alcudia & Puerto de Alcudia
This area is ideal for holiday home investment with excellent beaches, good infrastructure, a range of sports facilities including the 18 hole Alcanada Golf Course and the Puerto de Alcudia and Bonaire marinas. Well located, front line property has retained its value in this area although prices, particularly for smaller properties, have decreased by up to 25% (depending on location) offering price levels of six/seven years ago. Prices range from 300,000€ for a two bedroom apartment with sea views to over 1€ million for a luxury seafront penthouse.

Although new developments have almost completely stopped there is one front line development which is about to be launched on Alcudia Beach of 15 quality, contemporary style apartments, which will be completed by 2012. Lead in price for a 3 bedroom apartment starts at 1.175 € million to 1,6€ million for the penthouse with private swimming pool.

The North/ Rentals
Enjoying high value short and long term rentals mainly for fincas and large villas and this year the rental market is buoyant. For example a five bedroom villa with pool can command 3,550€ per week in low season and 5,550€ in high season per week. Since 2008 rental yields have dropped (depending on the property) by an approximate average of 20% and in the current climate, it is important that owners realise that they might have to consider offers.

The British tend to dominate the short term rental holiday market and generally German speaking clients are looking for longer term rentals.

NORTH EAST

This is certainly one area of Mallorca where your money can go further. The approximate square metre price for fincas in and around Arta is roughly 30 € per m² and for frontline seaside properties prices range from 500 € – 1000 € per m². For example; a 2 bedroom front line apartment in the fishing port of Colonia St. Pere is on the market for 350,000€.

Property requests and general activity have increased over this time last year and there is more confidence in the market. Prices have not really reduced a great deal in this area because they never reached the highs of areas such as the south west. The market here is therefore more stable and owners are less willing to negotiate.

The average price for a four bedroom villa with views is around 1.7€ million which represents a price decrease of around 10% from 2008. Well located country fincas are holding their prices with minimal price reductions to close a deal. Up and coming areas include Costa de los Piños, which has always been very popular with the Spanish “jet set”. Now large, Spanish owned, family holiday homes are coming onto the market in this area.

SOUTH EAST

The general picture here is similar to the north east where prices have remained relatively stable throughout the last two years. The year started well with sales of a wide range of property from 250,000€ to over 2€ million.

Currently, there is demand for countryside fincas and first line property with most sales around the 400,000-600,000€ range and a few between 1€ and 2€ million. The lower end of the market for townhouses and apartments (which are not front sea line) is still very slow.

Clients are mainly German speaking or Scandinavian. The British are still staying away. Areas with potential include Colonia San Jordi, particularly for frontline seaside property; Porreres – especially hill top locations and Cas Concos.

MENORCA

Menorca, the second largest of the Balearic Islands, has long enjoyed a reputation of providing a tranquil and exclusive holiday residence location. It represents an exclusive “bolthole” in the Mediterranean’s second home residential market and is widely regarded as a secure and safe, long term investment for potential clients.

The market boomed in the past five years, particularly in 2006/7. Since 2008 the global crisis started to affect property prices which have come down by around 15-25% or more in some cases. New development is strictly regulated by local government to maintain the island’s natural beauty and sustain its’ long term growth. The island is easily accessible via air and ferry from the Spanish Mainland.

Currently, demand is focused on well located villas with an average cost of a villa with views of around 3,000 – 4,000€ per m2. The apartment market is still very slow and values are around 2,500-3,000€ per m2.

Coastal areas are the most requested, especially in the south east with easy access to the island’s capital of Mahón together with the residential areas around the other major port of Ciutadella. Frontline property at Mahón and Cuitadella represent good value and the Sant Lluis area is ideal for those seeking the quiet life.

Inland prices are generally lower and because you are never far from the coast on the island, inland areas are attractive for prospective buyers. In addition, the north of Menorca is still less developed than the south and is an interesting area for secluded country fincas and there are still plenty of renovation projects available.

Over the past year there has been increased demand for rental property and this can provide buyers with an excellent way of earning a steady return of between 3% – 5% (depending on facilities and location) on their investment.

Recently, the international market has started to open up again and there has been more interest from German speaking and Italian buyers. The British still account for approximately 20% of the market with interest from Irish buyers.

The island is always looking to open up new markets and next year plans are progressing to bring two direct flights a week from Moscow so Russian buyers could also enter the market.

Comments

comments

Leave a Reply

Profile photo of Mark Stücklin

About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.