Mallorca, not exactly over-built

Mallorca Property Market Overview 2010

The property market in Mallorca has certainly been affected by the global downturn but you cannot lump the Balearics together with the rest of Spain, in particular the mainland costas, where over development has led to a vast surplus of new build apartments leading to a dramatic fall in prices.

Unlike the mainland coastal regions, Mallorca has attracted very few speculative investors and still remains what has come to be known as a lifestyle choice destination. It’s a sophisticated and easy place to live permanently. Foreign residents account for 21.7% of its 855,000 registered population, the highest percentage in Spain whose average stands at 12%. This doesn’t include the influx of foreigners who spend three to six months here in second homes, conservatively estimated at 60,000. The Balearic Islands have the third fastest growing population in Spain.

It has taken time for vendors to adjust prices in Mallorca. Predominantly a second home market, a property might easily have taken up to twelve months to shift in the boom times, with vendors not pressed to sell and buyers not pressed to buy. These waiting times have increased, even doubled inland, adding more properties to the rental pool. A number of vendors resorted to setting up lotteries this year, running foul of the Spanish gaming commission, and those who sold sufficient tickets eventually organised their draw in Austria. An enterprising company set up the first public auction in May where only 9 properties sold out of 20, and a second auction scheduled for July was cancelled through lack of interest.

By the end of 2009, official statistics showed apartment sales had reduced by 36% compared to the same period last year, with prices down by as much as 20% in some cases. However, this includes new build apartments in Palma suburbs and inland townships which are generally of no interest to the overseas buyer because they have little or no views and no facilities. Communities with gardens and community pool have fared better. Palma city apartments and quality, seaview apartments in sought after locations in the south west may have been reduced by 15%, which will spark buyer interest.

Prices for fincas and villas inland have readjusted downwards by 15-20%. Diligent buyers who do their research and watch the market carefully are able to seal some excellent deals though this is not the norm. A five bedroom villa in Bunyola, originally asking €1.65m, dropped almost 40% to €1m and sold immediately. Currently for sale in the same area, is a superb, rustic property with 15,000 sq metres of land, which had been asking €3.95m in April 2009. Its price has now been reduced 30% to €2.75m. Inland areas, where the supply of large country homes is limited, eg. rural south west and the south east corner, may not see such large price falls.

The top end of the market which seemed resilient to change has eventually succumbed. There are always buyers for first rate properties in first rate positions. A new, modern-rustic villa of excellent build quality with exquisite views in Cala Marmacen (Puerto Andratx) sold recently for over €8m having received several offers from interested parties. There are other vendors asking high figures on the coast, but in a buyer’s market, they cannot expect to sell on location alone. In general, frontline properties with unrestricted seaviews, and better still with sea access, are still sought after but the price must reflect the condition of the property itself.

Before the economic downturn, the numbers of overseas buyers in Mallorca had been split virtually 50-50 between the British and Germans. By mid 2009, with apartment sales reduced by 30% compared to the previous year, German buyers accounted for 65% whilst the weak pound contributed to keep British buyers at 20%, with the rest spread amongst other nationalities, notably Swiss, Spanish and Scandinavian.

Balanced supply and demand

Many buyers coming to Mallorca in search of a seaview property are surprised not be overwhelmed by choice. After all, with an area of 1,416 sq miles, the island is more than twice the size of Greater London, with its 32 boroughs, and boasts 345 miles of coastline.

However, only 21% of this has urban classification. The rest of its perimeter comprises land designated as rustica (where building regulations require a minimum plot size of 15,000 square metres and upwards), national parks, protected areas of outstanding natural beauty and a few strategic military zones.

The best, front line plots were taken in the 70s and 80s in the wake of the tourist boom. A vast number of them were used for apartments designed by Pedro Otzoup, whose distinctive, whitewashed Moorish-Mediterranean complexes pepper the whole of the south west coastline.

Now, good plots for construction of apartments have all but disappeared in the south west, forcing developers onto smaller, steeper sites where build costs are passed on to the buyer, or to different areas of the island where infrastructure will take time to establish to attract sales. In those urbanisations where you can still build, there is little or no provision for granting of construction licences for apartments.

Tightening of planning laws

As elsewhere in Spain, Mallorca’s local planning departments have come under close scrutiny and authorities are getting tougher by adhering to the letter of the law rather than imposition of fines. In 2008, six illegal buildings were demolished (more than the previous 13 years put together) but in 2009, eight have already gone and 70 cases of properties built without a legal licence are under investigation. In Puerto Andratx, where the mayor, Eugenio Hidalgo, is currently serving a prison sentence for granting construction licences on protected land, there are demolition orders on several buildings, including 24 new, luxury apartments in Carrer Tonya (Cala Llamp) and an apartment block in Avenida Gabriel Roca which was constructed on land designated as a public car park.

Pressure from local resident associations and environmental groups such as Grup Balear d´Ornitologia i Defensa de la Naturalesa has also forced councils to get to grips with eyesores which have been tolerated for years due to complicated legal issues, including the shell of an apartment block on the skyline in Puerto Andratx above the 80s Montamar community and Ses Covetes, 68 abandoned concrete boxes off Es Trenc beach in Campos.

In some coastal urbanisations, such as Cala Blanca and Montport III in Andratx (SW), Muleta (Puerto Soller) and Cala Carbo (Pollensa) the area has simply been re-zoned as protected and development no longer allowed. In some cases, a degree of infrastructure had already been in place, resulting in costly compensation claims. In Son Vida (NW Palma) and ten urbanisations in Puerto Andratx including Montport, granting of construction licences has ceased while councils sort out the mess of failing, basic infrastructure and who is responsible for its replacement and funding.

Investment in infrastructure

Mallorca’s construction sector benefited from “Plan E” at the beginning of 2009, central government’s pledge of €33 billion in order to boost the economy and create jobs. More than 600 building projects were financed, of which 90 were in Palma, from road and cycle path resurfacing to modernising schools and creating access for the disabled to public buildings.

Continuing improvements to the island’s transport systems greatly adds to its appeal. There are now 574 vehicles per 1000 inhabitants. The motorway network is already widespread and in 2009, a further €25 million were invested in widening country roads, notably the stretches Montuiri-St Joan and Porreres-Llucmajor. Work has begun on a third lane to the Palma ring road from Valldemossa to Genova. In Palma, there are 756 vehicles for every 1000 inhabitants and the Via Cintura carries 80,000-120,000 vehicles daily.

Plans are now underway to extend the existing rail links from Sa Pobla in the north to Pollensa and Alcudia, and from Manacor via Son Carrio and Son Servera to Arta in the north east. A steam locomotive running out of Manacor on the original rail track was replaced in 1964 by a diesel locomotive and finally went out of service in 1977. At a cost of €108m, 35 km of track will now be replaced and the service reinstated. €4.3m of €6m made available as compensation to property owners has already been paid out and six train-trams ordered from Vossloh in Valencia. The trains hold between 242 and 347 passengers and can travel at 100 km per hour. Work is due to start at the beginning of 2010.

Palma

Palma Portixol

Only ten minutes from the airport, Palma is a stylish, intimate city with interesting architecture and a medieval quarter. 19.5% of its 396,570 official residents are non Spanish and of these, 28,271 are from the EU. Finding your way around is easy and public transport is cheap and reliable. It’s also a very clean city. An underground vacuum system whisks away biodegradable rubbish, planning schemes have created more green zones and more and more vehicles have to park underground – the latest carparks guide you to vacant spaces with green lights. Palma city council introduced further designated cycle lanes in 2009, bringing the total to 30 km in and around the city. It also introduced a bicycle lending scheme operating from the Parc de Mar and plans to set up a network of cycle hire points across the capital in the second half of 2010.

In May, the €63m underground bus station opened in Plaza Espana. Two levels down, it occupies an area of 14,000 sq metres with space for 29 stops supplying 25 island routes. Detailed plans were made available of phase II of the tram service (one level underground), which will run every 15 minutes from Plaza Espana along the seafront to the airport as the “Aeropuerto servicio Express”, stopping at Portixol, Coll de’n Rabassa and Can Pastilla. Work on the 10.8km line should begin in summer 2011 and the service should be running by May 2013.

Palma was the first city in the country to have its traffic light system working off an electricity saving scheme. Since June 2009, 10,000 lights throughout the municipality have been functioning off new technology which renders them more visible at night, triggers lower amounts of CO2 emissions and could save up to €200,000 annually. The new, natural gas pipeline which originates in Denia on mainland Spain and stretches 271 km on the seabed came ashore in Mallorca near Ciudad Jardin this autumn. It will deliver gas to homes in Palma and Marratxi (north of the city) by the end of the year and expansion of the gas network continues with lines planned to Alcudia and Manacor in the near future. The power supply company Endesa has been awarded a two year contract to supply natural gas to twelve of Palma’s bus fleet, reducing CO2 contamination and noise levels.

This year, Es Jonquet (just south of Santa Catalina) with its windmills and former fishermen’s cottages was declared an area of protected cultural and historical heritage. In the old city, renovation programmes are still in evidence, with facadism often favoured (a compromise between demolishing and rebuilding, retaining the front elevation) sometimes incorporating the typical Mallorquin, glazed “winter balcony”. Palma Council has enlisted the support of six professional guilds to help the city’s buildings pass the new Technical Building Inspection (ITE), introduced in January. All listed buildings and those built prior to 1900 are affected, a total of 2,475 buildings. It is offering 95% reimbursement of the licence fee if repair work needs to be carried out to comply with the new law.

Work on the 2nd phase of the restoration of Palma’s old city walls will begin next year at a cost of some €3.5m and is estimated to take 18 months. It will include installation of ramps and stairways allowing public access to a unique historic area of 125,000 sq metres. The old renaissance wall where Avenida Gabriel Roca joins the main Paseo Maritimo, will also be cleaned and restored.

Across from Portixol harbour, work on Palma’s 125 million Euro congress centre continues though financing issues have pushed back the completion schedule. It will provide a central auditorium, several conference halls with a capacity of 2,400 delegates, a café and hanging gardens overlooking the bay of Palma. Alongside this will be a 9 storey, five star hotel. The winning design, awarded to Spanish architect, Francisco Mangado, resembles a gigantic fish on the shore, with laminated glass panels like shimmering scales.

A current ban on the construction of commercial centres and department stores will come to an end in 2010, paving the way for construction to exceed 1,300 sq metres in Palma. The sector will be free to grow. However, trading outlets like Festival Park will no longer be permitted on rural land.

In order to stimulate the economy, a government initiative authorised Palma city centre shops and businesses to remain open until midnight once a week during the peak summer months of July through September. The highly successful “Thursday Night Fever” campaign also allowed art galleries and museums to participate and even Palma cathedral remained open for visitors. Local traders’ associations are strongly in favour of late night opening until 2200 Monday to Saturday throughout the summer of 2010.

Prices for apartments in the city reached an all time high in 2008, approaching equivalent price per square metre to Madrid. They have been steadily adjusting downwards and levelled off, with average sale time increasing from around nine months to one year. You can now find one bedroom apartments from €185,000 to €255,000 and two bedoom apartments with outside space from €375,000. Traditional features (terracotta tiling/wooden beams/Santanyi stone window surrounds) and good views can bump up the price to €500,000 whilst apartments in palacios with Mallorquin courtyards or seaviews will be considerably more. One of the most popular areas is Calatrava, a historical area of labyrinthine streets surrounding the cathedral, though only 5% of residents have access to a parking space. Also in demand are La Lonja, formerly part of the harbourside scene, and the area surrounding Santa Catalina market with its café culture and bistros. Prices in Portixol, the waterfront on the eastern fringe of the city, have remained relatively stable due to lack of supply of property. A three bedroom, renovated fisherman’s cottage with a garage and 270 degree views over the harbour recently sold for a figure in excess of €1.75m. Further along the coast, you can now find two bedroom apartments 50 metres from the beach in Ciudad Jardin and Coll den Rabassa for €450,000 upwards, with a €100,000 premium for seaviews.

South West

The southwest corner of Mallorca has the most developed infrastructure, with the best golf courses, marinas and international schools. Its year round life and proximity to Palma city makes it a popular area. The municipality of Calvia has a resident population of 50,777, 29% of whom are foreigners from other EU countries, predominantly UK, Germany, Italy, France and Bulgaria. In order to stimulate the construction industry, the council announced recently that building licences issued before 1st October 2009 (normally valid 12-18 months) would be automatically extended up to 24 months.

Seaview apartments now begin around €350,000 though these will be in older blocks. The majority of apartments in prestigious communities, ie. close to the golf courses in Bendinat or Santa Ponsa, and around marinas such as Port Adriano or Puerto Portals, will cost €450,000 upwards.

Work has begun on a new electricity substation in Santa Ponsa which will take a 237 km underwater power cable from mainland Spain (Morvedre power station in Valencia). The 375 million Euro project is the first of its kind in Spain. The new link will act as a back-up in case of power outages and also cut carbon emissions by 1.2 tons annually. Also in Santa Ponsa, permission has been granted for a new Guardia Civil police station at the Son Bugadelles industrial estate which will incorporate offices as well as an accommodation block on the 3,700 sq metre plot.

The municipality of Andratx has sent out demands for payment to cover the €44m costs of replacing and renewing the entire infrastructure of ten urbanisations which were never legally recognised by the council when they were built as far back as the 1970s. It is planned to install mains water and drainage, underground electricity and telephone lines, resurface roads, create pavements and erect street lighting. The bills affect around 2,500 residents and are based on the maximum area of construction permitted on each plot. Work is scheduled to begin in February by Acciona, and once completed, the council will be able to organise rubbish collection services. In the meantime, owners are faced with sums amounting to €16,000 – €25,000 on average, payable in four installments over the next two years and in order to ensure payment, charges have been entered in the registry against all properties concerned.

The Ministry of the Interior has given the go ahead for Mallorca’s casino in Calvia to move to the Porto Pi centre in Palma. The existing cinema complex, which was the first of its kind on the island, will be refurbished, together with adjacent premises of 3,000 sq metres, providing gaming rooms, restaurant and live entertainment facilities. Opening is scheduled for autumn 2010. The Balearic Business Federation has welcomed the news with enthusiasm as not only should its location bring more custom from the city but the management company will be increasing jobs by 26%.

North West Tramuntana

This is Mallorca’s most dramatic region, dominated by a chain of craggy, limestone mountains, stretching from Andratx to Pollensa. Impressive peaks rising to 1,500 m and plunging sea cliffs are intercepted by sheltered valleys of olive or citrus groves and picturesque villages. Renovated, stone townhouses with a small garden or roof terrace can be bought for €350,000 upwards. There’s a reasonable choice of character properties around €550,000-€750,000, the majority of which are clustered together, either back to back or semi detached. Detached fincas with their own pool are more difficult to find and cost up to €1m and considerably more. Deia property appears to be falling ever more into the hands of non Spanish residents, now accounting for over 41%.

The Tramuntana region has already been submitted to UNESCO’s World Heritage List though acceptance will not be known before February 2011. This year, the government paid €11m for its fourth large estate, the 445 hectare Finca Planicia in Banyalbufar. It has now opened to the public, enabling hikers to follow dry stone wall routes along the coast. Further funds will be needed to open a museum and restore old buildings which will eventually become hikers’ hostels.

Jumeirah, the Dubai-based group famous for creating the world’s first seven-star hotel, the sail-shaped Burj Al Arab, is planning its debut European resort property in Puerto Soller. They are confident that the unique characteristics of the hotel, perched on the clifftop, will be embraced by discerning travellers and by the time it opens in just over a year from now, the current economic cycle should have eased.

North

The journey from Palma to Pollensa takes only 25 minutes. Pollensa’s Club Nautico is planning an extension to its installations which will include lengthening the breakwater to accommodate 43 new moorings. The plan also includes the creation of 20 deep-water moorings for super yachts.

The coal fired power station in Alcudia, with its twin chimneys, is one of the most important examples of industrial architecture in the Balearics, inaugerated by General Franco in 1957. As coal shipments arrived by sea, its site is frontline to the bay. Abandoned for more than ten years, it was slowly falling into decay. A project is now underway to clean and reconstruct part of the station as a working museum, library and auditorium.

Alcudia has been somewhat maligned as “the Magalluf of the north” in the past, but although it still has a small, contained core of eateries and bars aimed at mass tourism, it’s far more restrained and anyone who explores properly will be surprised at what the area has to offer in terms of facilities as well as seaview properties. The walled town of Alcudia has gone upmarket and has some first class restaurants. There’s an attractive marina, clean beaches and all manner of watersports The residential areas of Mal Pas and Bonaire are peaceful corners on the Aucanada peninsula with sunset views over the bay of Pollensa towards the Tramuntana hills. Traditionally favoured by wealthy spaniards, there are some quality villas for sale from €1m upwards. A superb property with a constructed area of 570 sq metres and land of 2,000 sq metres, is currently on the market asking €2.2m which represents excellent value in comparison to the south west of the island.

The new passenger terminal in Alcudia port is scheduled to be fully operational at the beginning of 2010. The building was completed in September and is now just waiting for power supply company GESA to link it up to the electricity network. At a cost of some €13m, the project involved remodelling the western docks, reclaiming 25,000 sq metres from the sea and construction of elevated walkways. It will be able to serve up to 300,000 passengers a year and four vessels simultaneously. It currently acts as a base for maritime connections between Palma, Barcelona and Menorca. Plans to extend the rail network from Sa Pobla to Alcudia have come under fire by local residents who are challenging the proposed route, parallel to the Inca-Alcudia road. An alternative route has been suggested, passing alongside the S’Albufera nature reserve.

Alcudia town council will also be the first in Mallorca to provide a recycled water system for irrigation and use in hotel toilets. Hoteliers will now be able to cut their costs by 30-50%, prompting a price war between the existing private water companies Acasa and Fusosa.

Despite protests by environmental groups, it seems the Son Bosc golf course will go ahead at Muro. The area already has a championship course in Son Servera, where the Open of the PGA European Tour will be held in May 2010.

The north east of the island around Arta is not well known amongst UK buyers yet is only 55 minutes from Palma on excellent roads. As you leave Manacor northwards, the C715 runs through picturesque orchards and pastureland. There are four golf courses in the vicinity and some of the region’s most secluded beaches are close to hand north of Cala Ratjada. The town is surrounded by the ancient hunting grounds of Mallorcan royalty, with the peaks of the northern Serra de Llevant mountains as a backdrop.

The regional Environment ministry teamed up with German tour operator TUI in a reforestation project to plant 60,000 trees in the hillside territory Ses Bolos in Arta. By 2012, a 126km hiking trail will have been completed between Arta and Lluc, linking the Llevant mountains with the Tramuntana range on the NW coast.

Inland

Mallorca has become a popular training and competition venue for both amateur and professional cyclists, which brings in revenue in the shoulder months. 90,000 cyclists were attracted to the island this year which has over 300 km of signposted cycling routes as well as tracks for mountain biking. Dedicated hotels are now offering cycle hire information, zones dedicated to cleaning, repair and maintenance of equipment, medical and massage services and special food packages for cyclists. The 5th Mallorca Classic Car Rally in March is becoming increasingly popular and this year the BBC TV programme “Top Gear” filmed their well known trio participating in the rally.

Property in the centre of the island is taking longer to shift and for anyone prepared to live half an hour from the coast in quiet, rural communities, there have been some good price reductions. A finca in Sencelles asking €5.5m has now been reduced to €3.95m. Traditional, renovated village properties can now be found asking €300,000 upwards, whilst detached fincas with pool and views are asking €500,000 and more, depending on exact location.

Coastal Areas – environmental awareness

Mallorca relies heavily on the tourist industry and its service sector accounts for almost half of the island’s businesses. Nevertheless, environmental awareness has been top of the agenda this year, alongside its promotion of quality tourism.

In July, responsibility for maintenance of the Cabrera archipelago was officially handed over by central government in Madrid to the Balearic government. Cabrera lies just south of Mallorca, off Colonia St Jordi and comprises 18 islands with a total area of 18.36 sq km. It was declared a national park in 1991 and its surrounding waters are a marine reserve. Funds are now available for improvements to the visitor centre in Colonia.

The Balearic government recently confirmed that it intends to officially request Central government to approve a 50,000 sq km reserve 70 km south of Mallorca in order to protect the endangered blue fin tuna breeding grounds. Over fishing, in particular to supply the Asian market, is bringing the tuna close to becoming an endangered species.

Over the next two years, it is planned to spend €18m on coastal protection, maintaining sand dunes and introducing wooden decked pathways. The island has 554 km of coastline and over 60 beaches with access for the disabled. In 2010 it will be awarded 41 Blue Flags and a further 17 for its ports and marinas. 34 boats patrol Balearic waters throughout the peak season keeping the waters free of non biodegradable rubbish. This summer over 200,000 recyclable, cardboard ashtrays were distributed on the beaches and laws were introduced to phase out plastic bags in the major supermarket chains.

A study by the Ministry for the Environment in Madrid in November 2007 reported 730 infringements against the coastal regulations in Mallorca. The majority involved pools, carparks or hotels fallen into disrepair or ruin. Investigations began into the position, size and licences of Mallorca’s 107 beach kiosks or chiringuitos. This summer, it was announced that only two were due to be torn down. Furthermore, licence renewals previously granted for six years will now be granted for fifteen years.

The massive regeneration project at Playa de Palma (the coastal area SE of the city) is slowly moving forward. It will be overseen by West8, a Dutch company of 75 architects which was responsible for remodelling the waterfront in Toronto as well as city parks on Governer’s Island, New York. The project involves demolishing old hotels and injecting life into 6 kilometres of seafront between Arenal and C’an Pastilla and has to take into account the wetlands of Ses Fontanelles behind the beachfront which will now be protected. Funds for the initial phase of the project have been received and firm plans have been promised for May 2010.

In Colonia St Jordi on the south coast, a UK company specialising in sports training camps has invested €2.5m in a 50 metre, 10 lane Olympic pool for off season training. The company organised the training schedule for the British Olympic Swimming Team in Mallorca before the Bejing Olympics and hopes it will train potential swimming stars for the 2012 London Olympics.

In Porto Colom, work begins in 2010 on the new 4.5 km promenade.

The yachting industry

Mallorca is the main superyacht hub of the western Mediterranean, providing yacht servicing companies and a skilled workforce in the shipyards to repair and refit throughout the year. The summer of 2009 saw countless megayachts cruising Mallorca’s waters, from the 92 metre “Tatoosh” owned by Microsoft co-founder, Paul Allen, to the 119 metre “A” owned by Andrei Melnichenko and reminiscent of a luxury submarine.

The island now has 16,000 berths in 32 harbours. Eight of these were expanded in 2009 (CV Puerto Andratx, Cala Gamba, S’Estanyol, Colonia de Sant Jordi, Porto Colom, Cala Bona, CN Cala Ratjada, and Puerto Soller), providing up to 4,500 more berths. In Porto Colom, moorings were increased from from 52 to 130.

In Port Adriano, an €80m expansion project by Ocibar (a local company controlled by Banca March and the Zaforteza family) is well underway on the new breakwater quay which will provide 33 more berths. Superyachts will be able to berth by May 2010. 40% of the berths available for sale as long-term concessions until 2037 have been taken up by European owners.

The second phase, towards the end of 2010, will see the commercial area up and running. The marina will be able to accommodate 82 more 20-60 metre berths in total and there will be 472 new parking spaces. An underground car park for 260 cars will be operational in 2011. The designer Phillipe Starck is leading the team in the design of the service areas and shoreside facilities which will encompass 4,000 sq metres. He has even had a hand in designing the bollards.

Permission for the project took several years, as the company had to satisfy Brussels, as well as Madrid and Palma, that it was complying with environmental regulations and not destroying any underwater meadows of the protected Posidonia seagrass which are key to the stability of the island’s sandy shorelines. Another move to protect the Posidonia grass, was the introduction of nine “eco mooring” areas in the summer of 2009, including Cala Blava, Sant Elm, Porto Petro and Punta Avancada off Pollensa. They provided 400 swinging moorings which were used by 15,000 yachts.

The Balearic Island Ports Authority (APB) confirmed in November that the old port of Palma (Muelle Viejo) just off La Llonja is to be converted into a business and leisure centre, as well as providing berths for large yachts and pleasure boats. It was used this year for the first time by 18 large sailing yachts taking part in the Superyacht Cup, a prestigious regatta traditionally held in Antigua, providing glamorous, sponsor driven entertainment.

The cruiseship industry

In 2008, Palma ranked as the 10th busiest homeport in the world with 1,131,000 cruise passengers, surpassing Southampton, New York and Singapore. In August, central government gave the green light to a €23m project to extend Palma’s West Quay by 430 metres to enable two cruise ships of up to 380 metres long and 30 metres wide to dock at the same time on the same quay.

The cruise industry is a dynamic source of economic activity and the UK is the largest source market for cruise passengers in Europe with 1,477,000 residents taking cruises during 2008, representing 33.3% of the total European market of just over 4.4 million, a 10.5% increase over the previous year. It was also the third largest market in terms of cruise industry direct spending with €2.3 billion, a 13% increase over 2007.

The European Cruise Council remains cautiously optimistic that 10% growth year on year is still sustainable though to some degree the cruise market is driven by new ships. Over the four-year period from 2009 to 2012, 38 cruise vessels are scheduled for delivery for worldwide trading of which 18 ships with 38,900 berths (46%) are primarily for the European source market. However, the dearth of new orders over the last year means that the forward orderbook now stretches for less than four years. This trend, if continued, will have consequences both for the supply industries and for the ability of the industry to satisfy future growth in demand and can only be reversed by banks’ willingness to free up financing.

Outlook for 2010

Although the travel industry expressed concern for significant losses to the Mallorca tourist industry at the beginning of 2009, recent figures show much better performance than expected with 9% less visitors, and Palma airport remained the third busiest airport in Spain.

It would seem the region has fared better than others in “la crisis” though the Balearic government is aware that although people will continue to escape to the sun irrespective of global financial outlook, it still has to look for innovative campaigns for 2010. It has even employed world famous tennis player Rafael Nadal, who was born in Manacor and lives on the island, to promote sports tourism.

Together with IBATUR, the Balearic Island Institute for Tourism, it is also financing Mallorca’s first International Film Festival due to be held annually from April 2011, between the Cannes and San Sebastian International Film Festivals. Headed by top Spanish film director, David Carreras, it aims to to attract major commercial sector sponsors from the world of tourism and entertainment.

The Balearics will play a key role in Spain’s Presidency of the European Union by hosting 13 major summits in 2010, the most important being the European Defence summit in February. Mallorca is a competitive business destination, with established convention and congress centres. The British held over 400 conferences here last year.

As investment in the island is slowly gathering pace, whether the property market has bottomed out remains to be seen. The decline in prices seems to be generally slowing and there are reports of the first green shoots of recovery in the ailing economy. As we enter a new decade, there’s genuine, long term optimism for the Mallorca market.

Selling in 2010

If you genuinely wish to sell, make sure your asking price is realistic. Published prices are no indication of real transactions. Confirm with several reputable agencies what is actually happening in today’s market. You might consider what you are prepared to accept and allowing for selling expenses, set a fixed price in Euros. That way you will not waste your time or anyone else’s time.

Ask yourself how long you are prepared to wait. Unless the price is realistic, you may wait 18 to 24 months and there are no indications that the market will rise again. The lower end of the market (up to €500,000) may not pick up until the latter end of 2010.

It’s no longer the case that location alone will command top prices as discerning buyers will have researched and compared properties carefully and are looking for value. They will still pay for a quality house in a fabulous location, but considerably less now for a tired house in the same spot.

Don’t expect to sell your property in 2010 at a price you set in 2008.

Buying in 2010

Buyers should continue to have the upper hand throughout 2010 for property in most locations.

Sterling exchange rate forecasts indicate a positive though gradual change ahead for British buyers. Finding a British vendor returning to UK may help negotiations while sterling remains relatively weak. In the meantime, other nationalities are stepping in to reap the benefits of a buyer’s market, especially for prime property. Buyers with generous budgets should be looking to buy before proposed tax changes take effect in July 2010, of some significance if buying land as I.V.A. (VAT) is set to rise by 2%.

Cash purchasers will have a distinct advantage and more negotiating power. If you intend to arrange finance, do your homework first and be completely prepared because in today’s market you have to move forward quickly. A seller may step away from the sale if the legalities take too long and they think they are selling too cheaply.

Buyers in Mallorca are mainly lifestyle purchasers. Short flight times within Europe enable them to maximise the use of any property and many consider it their “home from home”. Property in Mallorca is not cheap but it’s undeniably cheaper than it used to be, and as a medium to long term investment you get an excellent package – an outdoor lifestyle, a safe, family friendly culture, superlative healthcare and sophisticated leisure choices. These factors influenced the Financial Times report that placed Mallorca 5th this year on a list of the world’s top10 real estate investment locations.

For more information on this report and the property market in Mallorca, or to find property in Mallorca please contact:

Jan Westwood
E: mallorca@thepropertyfinders.com
T: + 34 971 233 207
M: + 34 609 731 794
www.thepropertyfinders.com

Copyright Jan Westwood, The Property Finders (Mallorca)

December, 2009

Engel & Völkers, the leading international agents specialising in the quality first and second home market sector with 54 offices in Mainland Spain, the Balearics, the Canaries and Andorra, has experienced its toughest year since entering the Spanish residential market in 1999, though the year closed with a much needed Autumn surge of viewings and sales.

In Spain, the majority of European buyers tend to be German, Swiss, British, French, Scandinavian and Spanish even though the British market, for the moment, seems to have fallen away. Only realistically priced property for the current market conditions is attracting interest and there is still a great deal of negotiation to close sales. However, after a year of price reductions of approximately 15-30%, prices have now stopped falling and the market appears more stable than at the beginning of the year.

Engel & Völkers has opened eight new offices during 2009 in Barcelona (2), Costa Brava (3), Costa Blanca, Andorra and Tenerife. The Costa Brava has per- formed well this year considering the difficult market conditions especially in the Baix Empordà area which is attracting Spanish, French, Scandinavian, British and Dutch buyers. There, average sale prices are over €1 million in this area for rustic properties “masia” or properties with sea front locations.

Says Marcus von Busse, Managing Director Engel & Völkers for the Spanish Mainland, Canaries, Andorra and Portugal; “Although there is always room for negotiation, we have seen that prices have stopped falling particularly in areas worst hit such as the Costa del Sol where prices fell by up to 30 %.

Now more than ever only properties that are correctly priced and in good locations continue to attract buyers. We are also seeing signs of a recovery in the UK market. This will have a positive impact on the Spanish market in 2010.”

In the Balearics, overall sales of second home holiday residences have dropped by approximately 35% in the last year. However, on Mallorca there has been in- creased movement in the past two months, specifically from German speaking clients who currently represent over 50% of the buyers. Demand is focused on prime located, quality property, which is reflected in the fact that the average sale price in the past 12 months is just under €1 million.

Says Daniel Chavarria spokesperson for E&V Mallorca; “Many potential buyers are looking for bargains and those owners that need to sell have reduced prices by approximately 15-25% depending on the property and location. However, at least half of our owners will stick to their asking prices.

Some owners have taken their homes off the market completely and are waiting for market recovery and others are more likely to consider renting out their homes to pay the expenses of maintenance etc… and get some return on their property”.

What’s on the market? Examples for under €1 million in these areas:

Costa del Sol – Ref: 1143208 – Marbella – Price: €890,000

The contemporary style villa enjoys excellent sea views and a panoramic view to the mountains. It features 4 bedrooms and 3 bathrooms with a constructed area of 320m2 on a plot of 1,065 m2. The property is located in Nueva Andalucía which is easily accessible with modern amenities nearby. It is also close to the golf courses of Los Naranjos and Las Brisas and the famous yacht harbour Puerto Jose Banús can be reached within a few minutes. The outdoor area has a large terrace and pool area, a covered carport for 2 cars and a bio sauna.

Mallorca – Ref: 1190046 – Costa de la Calma – Price: €698,000

Attractive, top quality, semi-detached villa in Mediterranean community. Features 2 bedrooms (1 with en suite bathroom & balcony), spacious living & dining area with access to a terrace, fully fitted kitchen, library, A/C & heating, large roof terrace with sea views, community pool & barbecue area. Fast access to Palma which is only 25 minutes drive away.

Costa Brava – Ref: W-008V19- Pals – Price: €970,000.

A typical historic house located in the heart of Pals, one of the most attractive medieval villages in the Ampurdan (Empordà). Solid stone walls, high beamed ceilings, and arches typical of the ancient Catalan stables. Constructed area of 403 m2 on a plot of 590m2. Features 4 bedrooms and 3 bathrooms. Furthermore, the property has permission to construct a studio over a 3 car garage and a swimming pool.

For more information visit www.engelvoelkers.es or www.engelvoelkers.com/mallorca

The section on Spain starts like this:

“The country had one of the biggest housing market booms in Europe, so the expectation is for a marked correction, partly for domestic reasons but also because the second home market had been so strong and foreign buyers played such an important part in it. Now they are few and far between.”

You can download and read the whole report (pdf) at your leisure using the link below. Go to page 102 for Spain (it’s a long report, covers a lot of ground).

+ RICS European Housing Review 2009

Who doesn't want this?

An up-to-date report on how the worldwide economic crisis is affecting the property market in Spain’s most important resort city.

By Christopher Clover, owner and Managing Director of Panorama, Marbella’s longest established Real Estate Agency

February, 2009

Before the critical events of September 2008 and the following months, the property market in Marbella was suffering severely, as throughout Spain and the rest of the world, especially in the lower end of the market, and especially with newly built properties.

As the year advanced, it became clear that Spain’s own economy was nowhere nearly as strong as the politicians were announcing before the March elections. The “easy credit” which was a primary factor in fuelling the Spanish property “boom” of the mid-1990’s to 2006 had virtually dried up. Property companies started to go bankrupt, affecting the entire economy. The Bubble burst, hard times began with a bang and the repercussions ran deep.

On the Coast, the market for “off plan” touristic properties peaked in 2004 and has been on a descending curve since then, reaching crisis proportions last year. Nationally, the demand for new homes hit its peak in mid-2007, according to national statistics. Today, (with reliable statistics still lacking from the Government) the Bank of Bilbao Vizcaya Argentaria estimates that at the end of 2008 there was a glut of between 800,000 and 1,400,000 new unsold homes in Spain (19/12/08, http://prensa.bbva.com), including the Coastal properties, with an estimated 24,000 living units on the Costa del Sol (Diario Sur Domingo, 04/01/09), which will take years to be absorbed.

Rampant construction on the Coast del Sol

However, one cannot really analyse the market from the press reports which generally concentrate on new properties and the national market. There are different sectors belonging to different markets in different areas where there is a variance of some of the basic fundamentals at play, and one should not make the mistake of lopping every sector of every market in Spain into the same basket and reaching the same overall simplistic conclusion. For example, until September of last year, it went virtually unreported that the higher end of the luxury market, comprising mostly resale properties, had held up reasonably well, as elsewhere in the world, and the most expensive properties belonging to the Super Rich were even marginally increasing in value.

The World Financial Meltdown, starting in mid-September, changed the scenario

The rapid slowdown commencing in September began to affect buyers of Luxury Residences not only in Marbella but globally, exacerbated by the credit crunch and the difficulty in obtaining mortgages. A very low volume of sales has characterized the market on all levels in general in the last quarter of the year.

How much have prices dropped from their peak prices?

The percentages stipulated in the following paragraphs are intended to be indicative in nature and are based upon the first hand experience of seasoned agents in the Marbella area who deal daily with buyers and sellers, including property developers.

• Properties most severely affected are the least expensive (under €700,000), comprising principally newly built properties but not excluding resales, in the less consolidated areas. They have gone down in price from their peak values in 2005-2006 (defined as real sales values, as compared with asking prices, of similar properties at their highest historical point) by generally 20% to 30%, but in some cases, even up to 40%.
• Properties in this price range achieving the best prices in a shorter selling period are located in better areas, and are usually resales, have descended in value from 15% to usually not more than 25%.
• Properties priced from €700,000 to €2,000,000 have seen a 20%-25% decline from their peaks (again, less so in the best areas) while those priced at up to €3.000.000 have suffered a lesser drop of 15%-20%.
• In the higher price brackets: fewer properties are for sale and although owners may be receptive to reasonable offers, in general they have the financial wherewithal to “hold out” if necessary. There are and will be some very good buys as, in some cases, even very wealthy owners simply want to “move on”.
• Very special “one of a kind” properties, with unique characteristics, qualities and location, have not been substantially affected by the crisis, provided their asking prices are sensible.

Again, the same is true for the most expensive properties as the less expensive ones: the better the location, the better the market, and the easier it is to sell.

Looking back at Marbella

The pricing of properties by their owners, in most price categories, is now far more realistic than in the past. This process has been complicated, as usual, by some agents who tell owners what they want to hear, rather than explaining the realities of the market. Most sellers, however, have already sharply reduced their original asking prices, but many potential buyers do not take this into consideration when they place an offer.

What is selling?

Barbara Wood, (www.thepropertyfinders.com) in a well-written market report of Andalucia, stated recently “in the quality resale market it is not so much about over-supply but more a factor of how badly and how quickly does the seller need to get out that is driving the market.”

There have obviously been sales since last September, but generally at substantially reduced prices, with the notable exception of truly unique properties which cannot be easily reproduced, or which a buyer has not wanted to risk losing by delaying. Many potential buyers think that vendors will drop their already reduced prices an additional 25% to 50%, without careful analysis of either the current market, intrinsic value, historical value, reproduction cost, or comparable sales being made right now. The result is that such offers simply throw a bucket of cold water on most sellers, and do not engage their interest to negotiate.

Other sales have been made between reasonable buyers (looking for a very good deal), and reasonable sellers, (looking to make a sale and move on, often to another property). Further sales are being made by those willing to trade up or down. These types of sales will continue throughout this difficult period.

Warren Buffet, who ranked number one on the World’s Billionaire list in 2008, said in an interview last November: “I don’t worry about the things that I really am not going to understand anyway. I worry about what’s important and knowable.”

What is knowable about the property market in Marbella that will be important in the coming months?

1. The demand factor is still there. The number of potential purchasers enquiring about and visiting properties for sale in this area has not plummeted, as worldwide property market stagnation might suggest. Viewings have dropped around 25% over last year’s levels, as reported by the top agents in Marbella, coinciding exactly with Panorama’s statistics of its own activity. However, enquiries via the internet actually increased during the last quarter of 2008, with respect to DM Properties and Panorama. The difference is that very few offers are being made, and many of these are totally unrealistic, as mentioned above. What is selling is limited to either very sensibly priced properties or very special properties from the standpoint of location, quality of construction or architecture, where a willing seller is ready to sit with a willing buyer and a good agent and see if they can realistically come together in harmony.

Strong supporting evidence of the still-present demand factor can be found in the study published last December by the company Globaledge (www.globaledge.co.uk). Claimed as the “biggest ever” study into global demand for overseas property”, the study examined 1.4 million English-language searches on Google using property and real estate keywords.

In essence, the study measured curiosity and Spain was clearly more interesting to Web surfers than any other destination, beating France into second place by more than a two-to-one margin.

Clearly there is a continuing and increasing demand of people who want to buy property in Marbella, waiting for the right time to move, and some of them will unquestionably act in the coming months. More than a few potential buyers, having located “the right property” for themselves and taken the decision to wait, will be disappointed when they decide to take action and find that their ideal property not only has been sold, but that there are no similar properties at similar prices on the market to replace it.

View of Marbella and La Concha from the Marbella Club pier

What else do we know for sure?

2. The off-plan purchaser has disappeared, for the foreseeable future, and will not be missed. Speculators of this nature only distort the market place. The end-user has taken his place, a good sign of a healthier market to come.

3. Quality locations hold value best: The three most important words in buying property “location, location, location!” remain true. Prime locations in the Marbella area and everywhere in the world are holding property values and selling far better than non-consolidated and secondary locations.

An excellent illustration of the above can be taken with the Urbanization Marina Puente Romano, in the middle of the Golden Mile, beachside, and situated next to the famous hotel of the same name. There are a total of 248 apartments in this magnificent estate. Only 13 of them are for sale, at the date of this report. And of these, only two owners have shown clear signs that they want to sell quickly, have dropped their asking price and are encouraging offers. La Zagaleta, located just outside the Marbella municipal boundaries, representing a quality estate environment virtually unique in Europe, has just 200 completed villas, amongst which only around 25 are for sale. Therefore, those potential buyers who place all sellers in the same category, and are expecting a deluge of properties for sale in the very best areas at rock bottom prices, are in for an unpleasant surprise.

4. Buyer insecurity is history: With the recent provisional approval of the new General Plan of Marbella, which is due to receive definitive approval later this year, buyers will not be responsible for developer’s sins, or failings of prior Municipal governments. Less than 400 living units are considered illegal under the new plan (compared with 19,000 before), and this phase of bad press and buyer insecurity is now virtually in the past.

5. Safe Haven seekers: Trust in banks and their investment products has declined. The stock market has burned so many people, that many will be unlikely to return. The logical alternative or “safe haven” for many will be that of well-located “bricks and mortar”, bought at rock bottom prices, as among the most effective medium for future long-term investment, especially when coupled with usage and the well-known life style factors which make Marbella unique in Europe.

6. After the crisis, inflation: Governments have embarked on immense deficit spending in an attempt to pump their economies out of recession. Along with other measures taken, this enormous amount of money just now starting to be spent will eventually assist in reviving economic activity. But inevitably, printing money, pump priming, will result in inflation, significant inflation, and the prime beneficiaries of inflation will be those who bought properties at prices which are now reaching lows never anticipated only a few months ago.

Sophisticated investor buyers who have seen the above rule work time and time again, are right now in the market, looking to pick up the highest quality real estate they can at the best price, and will continue to be present for at least another two years.

7. A concentration of Wealth: There is a tremendous amount of wealth concentrated in the Marbella area. Economically speaking, this area of Spain will be less affected compared to the rest of the country, due to the higher level of stability in the quality end of tourism, which is its number one industry, and in the so-called residential tourism resulting from the use of first and second homes by international part-time and full-time residents. Wealth attracts more wealth, and there are still lots of wealthy people in Europe who want to live all or part of the year in Marbella for well known reasons.

8. A multi-source market: Although the Marbella market includes a good percentage (easily over 30%) of Spaniards who represent the foundations of the market in the first instance, it is nevertheless substantially more international than it is national. It is a multi-source market. This diverse international market base is the biggest factor which distinguishes the Coast from the national market, and will provide strength for a quicker recovery.

9. British sellers are providing better deals: With the pound plummeting by over 25% of its value at the beginning of 2008, and over 40% since its peaks in the year 2000, many buyers are finding that the very best buys can often be found with British sellers, who count their assets in Pounds Sterling, and can afford to sell therefore for a lesser amount of Euros compared with Euro zone resident sellers.

What about the future?

The Coastal market will probably start to recover during the last half of 2009, depending on the evolution of the current world situation, but certainly before the national market. However, this recovery will be very slow, and very gradual. One should anticipate at least three years minimum before the market can return to normal activity. In the context indicated, the beginning of a market recovery is defined as “a significant perception by the market of an increase in the volume of sales”. Price levels of course depend on the level of both supply and demand, and as buyers come back into the market in significant numbers, prices will gradually increase.

Grand luxury still available in Marbella

Why is it possible for a beginning of market recovery so soon?

When the last setback commenced in 1990, the beginning of market recovery took easily 4 years. The market then built up year after year, to a speculative fever commencing around the year 2000 and double digit annual price increases. However, Marbella today is not the Marbella of the early nineties, for the following reasons:

* In 1990, Marbella was seasonal in nature and had a real population (i.e. “off-season residents” including the floating population of people living here but not officially registered), of around 120,000 people. But when recovery was well underway, between 1995 and 1996, there were at least 150,000 people really living in Marbella off season. It was this “core population”, or critical mass of residents in the winter months which allowed Marbella to convert to a 12-month season, where restaurants, nightlife and sporting facilities could have enough business to remain open all year round. Today, this real population off season is estimated to be in the region of 225,000 inhabitants.

* A critical factor in making the above happen was the investment of hundreds of millions of Euros in infrastructure, improvements and new facilities of all types, both by the municipal government of the early Mayor Gil years, as well as by private investment which Gil was influential in attracting to the city. These were the “show business” years of the early Gil government.

* Events and their repercussions move today at lightning speed compared with just twenty years ago, due to “globalization”, interdependence of economies and the speed of communication. As the prices in Marbella reach their lower limits, which is happening already in some categories and in “distress sales”, the word will spread instantly and those who have been waiting to buy will come into the marketplace, which will be the start of what will no doubt be a long period before returning to normal market activity.

* But the most important factor is that there is just not a great number of quality apartments and villas out there for sale in the best areas, i.e. there is a limited supply. Marbella is not, in terms of numbers of villas or apartments, the West End of London, or Paris, or New York. The last official statistics date from the year 2001 census of the Instituto Nacional de Estadística, just at the beginning of the explosion of growth and building fever in Marbella and throughout Spain, and estimate that there were 80,172 living units in Marbella in that year. Extrapolating by the number of building licences granted in the interim period until now, there are only about 105,000 villas, townhouses and apartments in all of Marbella today. Of these 105,000 dwellings, in very rough terms, about 25% would be rated in the luxury end of the market, let us say properties priced over €500,000, and in quality, homogeneous residential areas. And of these, how many might be for sale? Certainly not more than between 5% minimum and 15% maximum. If one takes an overall estimate of 15% on average for all of the quality end of the market in the previously mentioned price range, that would give us only around 4,000 units for sale. Compare that with the estimate of between 800,000 and 1,400,000 unsold living units in Spain quoted earlier, and it is easy to see why we are talking about a different market sector.

It is for the above reasons, therefore, that it is probable that the market will start to lift off later this year. But, in the meantime, before this recovery commences, a gradually increasing volume of sales will be made, generally to buyers who have decided they do not want to postpone their plans further. Generally speaking, the type of properties they will purchase will be well-priced, or viewed as excellent buys for their location, price, condition and lifestyle factor, or rare and unique properties which cannot easily be reproduced. A good agent will have these properties on his books and the knowledge and skill to help the buyer negotiate successfully with the seller.

There are of course conditions to securing a solid, long-term recovery. Apart from the obvious financial liquidity necessary for the beginning of a world economic upturn, these comprise: transparent, corruption-free and efficient local governments (this is certainly happening now in Marbella with the brilliant management ability and transparency of Marbella’s new Mayoress Ángeles Muñoz and her team); better public services and communication along with increasingly good infrastructure, which has already been ensured by the Regional Government and recent municipal grants by the National Government to the Town Halls; and greater care of our environment for which, finally, all levels of government are bearing the responsibility, as is apparent in the new territorial plan and urban plans for this part of the Coast.

Provided the above comes to bear, and there is solid evidence to this end, Marbella will not only come out of the current recession stronger than before, but will set the standard for other quality resort cities worldwide.

Costa del Sol property, Marbella property

An update on property price reductions in Mallorca by Jan Westwood of The Property Finders. See below for contact details.

The market in Mallorca peaked in late 2007/early 2008. Despite denials by property professionals that the island’s micro market would be largely unaffected by the general downturn, by the last quarter of 2008, the large chains reported sales were down 30-35% compared to the previous year. Apartment promoters were then prepared to give generous discounts to offload, albeit the sort of units in Palma and the suburbs which would not normally attract overseas buyers. The top end of the market still remained firm.

However, in the run up to Christmas, agencies began openly publishing the odd price reductions and by January whole pages appeared, with red banners across property photos showing original and discounted asking prices.

Southwest Mallorca apartments

Now, if you are shopping around for an apartment there are a few interesting deals to be made even though, unlike the costas of mainland Spain, there is no vast oversupply of developments. In the SW, some promotors left with new build units are prepared to take a deposit with two years or more to complete. A potential buyer recently placed a local advertisement offering his yacht valued at €700,000 in part exchange for a luxury penthouse, with cash top up, and received three replies from private vendors.

In the luxury bracket, there’s a three bedroom apartment near Puerto Portals in a prestigous, front line community with 24 hour security, manicured gardens and spa facilities, which has dropped by €750,000 to €2.5m. A second apartment in the same community has dropped from €1.9m to €1.425m.

Southwest Mallorca villas and fincas

In the villa/finca sector, there are reductions up to 30% island wide, but although many look good on paper, there’s often a downside. In the boom time, their prices were set unrealistically against “similar” properties but they may not be the best build quality and are not in prime positions. A few appealing exceptions in the southwest would include a villa frontline to the golf course which has gone from €4.95m to €3.6m and a Karig style, seaview villa in Cala Moragues (Andratx) reduced from €3.65m to €2.4m. Of note is also a three bedroom house in a community next to Santa Ponsa golf course, reduced from €725,000 to €595,000.

Mallorcan coastline

A stone faced, detached home in the centre of the highly sought after village of Capdella (10 minutes from the coast) has reduced its asking price from €1.9m to €1.5m. The four bedroom property, with pool, sits on a private plot of 1,200 sq metres and is within walking distance of local tennis courts.

This week, one promoter has offered to take any property in part exchange, up to 30% of the sales price, for a newly constructed, stone finca with pool near Port Andratx, asking €4.59m, reduced from €5.95m. The six bedroom property on 35,000 sq metres with own well, has wide ranging views over Sa Coma valley.

Palma city property

In the Casco Antiguo, the old part of Palma city, a three bedroom, refurbished apartment is reduced from €750,000 to €595,000 whilst a two bedroom apartment asking €395,000 is now asking €270,000. In general, the apartment market has readjusted 10-20% down. Just west of the city, a garden apartment in a quiet community of eight with own garage and easy access to the Via Cintura motorway has dropped from €775,000 to €599,000.

Southeast Mallorca

Although the apartment market has also dropped away on the southeast coast, it’s the one region which seems to have done better than most according to the Santanyi office of a large franchise chain. They actually reported 20% up on finca and villa sales for the last quarter of 2008 compared with the previous year. In general, though, there are long lists of unsold, country houses between €1.1m and €2.5m in this sector, and the first signs of visible price readjustment have appeared, e.g. A five bedroom finca with 11m x 6m pool in C’as Concos previously asking €2.2m has reduced to €1.9m. Top end properties are in fairly short supply but as they are not shifting either, may now be more open to offers.

Inland, north and east Mallorca

Unlike Andalucia where properties inland often change hands between spanish families, there are many more opportunities in rural Mallorca. Since improvements to the road network in the mid 90s, foreigners, in particular from the yachting industry, have been moving inland. They now account for 20.5% of registered home owners in Llucmajor, 33% in Andratx and 35.5% in Calvia.

In Montuiri (the very centre of the island), a four bedroom, rustic finca with pool formerly asking €2.45m has reduced its price by €500,000 to €1.95m. The land comprises 30,000 sq metres with its own well.

In the north and north east, prices have readjusted 10-25% down.

Sterling exchange rate

Due to the dramatic slide of sterling against the Euro, buyers from UK had dropped by 50% by the end of 2008. Buyers from Germany, Scandinavia, Switzerland, Russia and other parts of Spain picked up. However, as prices are dropping to more realistic levels, some properties are already 15% cheaper than last spring when the exchange rate was favourable, so the British are watching carefully, especially those with cash available whose negotiating power is phenomenal.

Jan Westwood is a buying agent with specialist knowledge of the market in Mallorca www.thepropertyfinders.com
Tel: +34 971 233 207

Copyright Jan Westwood 12/02/09

In 2007 Engel & Völkers reported its best figures ever since entering the market in 2000. At the start of 2008 Engel & Völkers top end clients appeared little affected by the worsening global financial crisis. Since then the unprecedented series of events has severely impacted the quality Spanish second home market and Engel & Völkers sales turnover dropped by 24% last year, which came in below the Spanish national average quoted figure of over 30%.

Says David Scheffler, the E&V Master Licence for the Spanish Mainland & Canaries; “In spite of the current gloom, E&V has sustained its market position thanks to our international brand and cross selling network. Our policy is to focus on the quality end of the market and this strategy means that a large proportion of our clientele do not have financial restraints and this significantly reduces the associated pressure in the current market of those agents focused on selling lower value property.

However, in the autumn of last year we saw market panic and many of our clients put everything on hold stalling the market completely. Now, those same clients are contacting us again”.

According to Scheffler, Engel & Völkers is the only estate agent brand in its region that expanded in 2008 increasing the number of offices from 57 to 62. In the current climate, existing estate agencies and developers are interested in joining the E&V network as they need the company’s international network and marketing support in order to survive and E&V anticipates further consolidation of the market this spring.

At the end of last year two licences were sold in Andorra and a minimum of five new offices are scheduled to open this year in areas including; Madrid-Salamanca, Playa de Aro, Barcelona St.Just and Sitges.

E&V’s sales turnover for the second home market was hit in almost all areas but particularly along the Costa del Sol where average prices fell by approximately 20-30%. The general consensus along the Costa del Sol is that the market is now close to hitting the bottom.

Some areas, such as the Costa Brava, are still selling and maintaining their market position. In this region, which is generally regarded as the “Spanish Tuscany”, and specifically in the areas around Gerona taking in Pals, Platja d’Aro and Cadaqués, there is still positive sales activity and demand from Spanish, French, Scandinavian, Dutch and British buyers.

The eight Engel & Völkers offices in the Costa Brava have reported fewer transactions over the year but each sale has been of a higher value of approximately € 1 – 2 million. The accessibility of the area is an important factor with regular scheduled flights into Barcelona and Gerona from all over Europe. Currently there is high demand for rustic property (“masia”) either restored or for restoration. Country/village townhouses and top sea front locations. At present it is still a buyers market with deals closing at around 15-30% under the original asking price.

The perceived value of winter sun can not be underestimated and in the Canaries, where Engel & Völkers has a total of 4 offices on Lanzarote, Gran Canaria and Tenerife, there is still encouraging market activity and sales. Clients are looking for well located properties in frontline sea positions although there is currently little interest from British clients, the Scandinavian, Dutch, Russian, Belgian and German clients are buying.

For more information visit www.engelvoelkers.es

The sun sets on the Spanish property market

This time last year I wrote that if Spain went into recession, then “most segments of the Spanish housing market are doomed to stagnant or falling prices for years to come.” Spain did go into recession in 2008, and it is fair to say that property prices are now falling across the board. The questions now are ‘how far will they fall?’ and ‘how long will it last?’

I try to tackle these questions in what I hope will be the gloomiest annual report on the Spanish property market that I ever have to write. Let’s hope I have better news to report here in a year’s time.

In all the gloom there is one interesting trend, namely the market being made by British vendors who have to sell but who also benefit from the weak pound. Without them, the property market in many popular coastal areas would not have a pulse.

Sadly, this trend is also a reflection of the woes of many British people who invested in Spain in recent years. They bought in the boom and are trying to sell in the bust, and many of them are trapped in Spain on declining incomes. There is a depressing personal story behind every distressed sale.

So, after that uplifting introduction, let’s look at what actually happened to the Spanish property market in 2008, and what to expect in 2009.

Spanish Property Prices Fall

According to official figures from Spain’s housing ministry (for what they are worth), average Spanish property prices fell by -3.2% in 2008, down from a rise of +4.8% in 2007, and way off the heady double-digit annual increases over the 4 years 2001 – 2005 (+18.5% in 2003 alone).

After adjusting for inflation, real Spanish property prices fell by -4.6% in 2008, compared to an increase of +0.6% in 2007, when the government was still repeating its mantra of a ‘soft landing’.

In both nominal and real terms, these are the biggest price falls for more than a decade.

The following chart shows how average Spanish property prices have changed each year in real and nominal terms since the start of the decade. It also shows quarterly prices changes (nominal) in the period.

Spanish property price graph

Over 10 years, average Spanish property prices are still up by 167%, that is they have more than doubled. At the end of 2007, prices were up by 197%, almost triple, but price declines in 2008 have brought the level of capital gains over the decade down a bit.

In regions such as Malaga Province (Costa del Sol), prices are still up 265% in a decade, that is more than triple.

As you might expect from a country as large and diverse as Spain, price performance differed significantly across regions.

The following chart shows how Spanish property prices have changed over the last 12 months, and the last 10 years, for a selection of regions popular with foreign buyers (all according to the government’s figures).

Spanish property price table

So much for the government’s figures. The problem is, they might not be very reliable, to put it politely. They are bases on valuations, rather than transaction prices, and not a few people, myself included, don’t trust them one bit.

There are, however, other sources of housing market data available to help build a picture of the current state of the market.

Anecdotal evidence from estate agents suggests that sale prices in many coastal areas popular with foreign holiday-home buyers are down by something like 20% to 30% in the last 12 months.

According to the housing index prepared by IESE Business School in conjunction with the property portal Fotocasa.com, asking prices for resale properties (flats only, which make up the bulk of the market) fell by -8.7% in 2008, compared to a fall of -1.1% in 2007, and a rise of +7.7% in 2006 .

+ See overview in English of the housing market at fotocasa.es website

Spain’s leading appraisal companies agree that prices fell last year, but differ as to how much.

Tinsa says prices fell by 8.8% last year, taking prices back to where they were at the start of 2005, and that property values on the Spanish Mediterranean coast, where most foreigners tend to buy, fell by 14.3%. Sociedad de Tasación says that new build prices fell by 6.6% last year.

The OECD, a Paris-based club of rich countries, estimates that prices have fallen by 10%.

Even the developers concede that prices have slumped, and look set to continue falling.

“New build property is now between 15% and 20% cheaper,” said Pedro Pérez, General Secretary of the G-14 group of Spain’s biggest developers, recently quoted in El Pais. “This is the biggest fall we have ever seen. Furthermore, 2008 has been the worst year since property statistics began. Despite all this, I don’t see any light at the end of the tunnel. And if there is no change, prices will continue falling.”

So, the government’s figures aside, the overall picture was of double-digit price falls in 2008, especially on the coast.

Sales Evaporate

Unlike its price data, the government’s sales statistics are fairly reliable, and tell of a rapidly shrinking market.

According to the Ministry of Housing, residential home sales fell by 33% in the first 9 months of 2008 compared to the same period the year before, with resale activity falling 47%, and new build 16%.

The National Institute of Statistics (INE) has sales down by 29% over 11 months to the end of November, with November itself down an annualised 37%.

The plunge in sales means a longer average time on the market for property. This is reflected in data from Fotocasa.es, showing average listing times rising from 70 days in mid-2007, to 215 days at the end of 2008.

So, whichever figures you look at, there were far fewer homes bought and sold in 2008 than in the previous year.

The situation is even more dire for developers, who have seen demand for off-plan property literally evaporate. The problem for developers is, why take the risk of buying off-plan when there are so many newly-built properties to choose from, and when prices are going down?

Spain’s 5 biggest developers, all quoted on the Madrid Stock Exchange, made a combined figure of 69% fewer pre-sales in the first 9 months of 2008 compared to the year before. One developer’s pre-sales fell by -101% as buyers pulled out of their sales contracts, preferring to lose their deposits than go through with the purchase. Some of Spain’s biggest developers, like Martinsa-Fadesa, have collapsed into administration. Others are teetering on the edge.

Demand Slumps

Sales are falling because demand has shrivelled up.

Demand has declined because property became unaffordable as cheap money and speculation drove prices up during the boom.

Although rising prices tend to stimulate demand for property for a while, there comes a point when the bubble bursts. Then comes the paradox of falling prices reducing demand even further, as people expect to buy cheaper tomorrow. That is what is going on in Spain today.

And on the coast, where the majority of properties are holiday homes, demand has been hit particularly hard.

For a start, demand for holiday homes – the ultimate extravagance – always dries up in recessions. This looks set to be the biggest recession since the war, so a collapse in demand for holiday homes is to be expected.

Secondly, speculative investors have fled. They were a big part of the market in the boom. The only investors around now are bargain hunters and bottom-fishers, who are hardly about to resuscitate the market.

Then there is the weak pound, which has left British buyers without any firepower.

For the past decade the British have been the biggest group of buyers after the Spanish, so their disappearance leaves a big hole in the market.

British buyers have also been turned off by a series of property scandals (illegal building, “land grab”, corrupt mayors, dodgy developers, etc.), and the gradual realisation that making money out of property abroad is not as easy as it appears on the telly.

Demand for second homes amongst Spaniards – traditionally the biggest group of buyers – has also taken a dive since the start of 2008.

Spain looks like it is going into a severe recession, with unemployment rising by 1 million (47%) over 12 months to the end of January 2009, and 200,000 people losing their jobs in January 2009 alone. There are 3.3 million unemployed in Spain today, and some expect it to hit 4 million by year end. Fearful of losing their jobs, Spaniards are not in the mood for buying holiday homes right now.

That Crunchy Feeling

Another major reason for the collapse in demand for Spanish property, and holiday homes in particular, is the credit crunch.

Without credit, most people cannot afford to buy holiday homes in Spain.

New mortgage approvals fell by 35% in the first 9 months of 2008, compared to the same period the year before. Banks can’t lend like the used to thanks to rising default rates (up from 0.64% in September 07 to 1.83% in September 2008, and expected to go much higher) and the death of the mortgage securitisation market.

Where they do lend, banks are using more conservative mortgage valuations and loan-to-value ratios, and have tightened up their lending criteria.

On the other hand, Euribor – the rate normally used to calculate mortgage payments in Spain – plunged 90 basis points (a change of -21%) to 3.45% in December, bringing some relief to borrowers on annually resetting Spanish mortgages. Many borrowers, however, will not see their interest payments fall for months to come.

Monumental Housing Glut

According to a study by José García-Montalvo, a professor at the Pompeu Fabra University, there are more than 1 million newly-built homes on the market, which will take developers more than 3 years to offload at current sales rates.

BBVA, one of Spain’s biggest banks, estimates that there are between 800,000 and 1.4 million new homes languishing on the market in search of a buyer. “We prefer to talk of a range, because it is a difficult calculation,” explained José Luis Escrivá, head of research at BBVA. “I dare say that the figure is probably above a million, and it will continue growing in 2009.”

On the other hand, the Ministry of Housing recently estimated the inventory of new homes at just 650,000. As with prices, the government’s figures are probably wide of the mark.

When you include the number of new properties for sale from investors, the situation is even worse. By some estimates investors bought 30% to 40% of the new properties sold during the boom years, and many of them are now trying to sell.

There is also a growing number of resale properties on the market, as reflected by lengthening sales times.

The overall result is that the market is swamped with properties for sale, whilst the number of active buyers continues to dwindle.

A shortage down the line?

Spanish developers badly over-estimated future demand during the boom, which explains why the market is now suffering from a glut.

There were 651,427 planning approvals in 2007, down 25% from a record 865,561 approvals in 2006. That year Spain was building more homes than the UK, France, and Germany combined.

But housing starts have now collapsed, which means that looking further down the pipeline, say 3 to 5 years, there may be a shortage of new homes.

According to the Ministry of Development, planning approvals for residential homes fell by 60% to 247,446 between January and November 2008. Blocks of flats fell the most, by 62% to 197,023 flats, compared to a 47% drop in detached housing, to 50,417 houses.

Planning approvals in November fell by 65% to 15,377, the lowest monthly figure for 2 decades.

In Alicante Province (Costa Blanca), where holiday homes dominate the market, planning approvals fell by 74% in 2008, and by 85% if compared to 2004. There were just 960 housing starts in the last quarter, compared to a quarterly average of 13,000 in 2004.

The collapse in sales and the credit crunch will continue to push down housing starts in 2009.

Local Property Markets

Here is what property professionals working on the frontline have to say about the local market in a selection of areas popular with foreign buyers.

COSTA DEL SOL
According to Michael Moon, of the eponymous estate agency (www.michael-moon.com):

• Prices are down 30% to 40% from the peak, and may have even undershot.
• Prices are down due to an increased realism taking hold amongst vendors, though there is still a lot of over-priced property on the market.
• Buyers are saying that, if the price is right, property is the best investment, better than stocks or bank accounts.
• There are still buyers, but only if the price is right. Buyers are now mainly lifestyle buyers looking for a great deal.
• There is a lot of distress in the market, especially amongst the British, who are under pressure thanks to the weak pound, amongst other things.
• British vendors are offering the best deals.
• The British aren’t buying at the moment, but other Europeans have moved in to replace some of the lost demand. The British will be back when the Pound improves, as their love of Spain has not disappeared.
• Prime location like the beach, or close to town centres, and other traditionally desirable locations, is limited and always in demand.
• What is not selling anymore is what Moon describes as “cynical projects” in terrible locations, for example up a hillside overlooking the motorway, that were built on the basis that “there is always some idiot who will buy.”
• Vendors who bought more than 7 years ago still have margin to negotiate and make a profit.
• You can now buy attractive 2-bed flats for around 120,000 Euros, down for 200,000 Euros at the peak of the market.
• “2008 was better than 2007, and 2009 will be better than 2008,” says Moon. “We had more enquiries and offers than we expected in January.”

COSTA BLANCA
According to Colin Scriven of Hamiltons of London (www.hamiltonsoflondon.co.uk):

• Prices fell by 20% last year, and he expects them to fall another 25% this year. “But I expect the market to bottom by the end of the year,” says Scriven.
• Business is brisk, mainly dealing with investors looking for a bargain as a medium to long-term investment, to rent out, and as part of a pension plan.
• There are also still some British buyers around who want to relocate to Spain and know that now is the time to buy.
• Buyers from the Eurozone, such as the Dutch and the French, are active, but not the Spanish. Nevertheless, demand is significantly down on previous years.
• “We are heading back to the era of cheap holiday homes in Spain, and the only things that are selling right now are bargains”, says Scriven.
• The bargains are coming from British vendors in distress who have to return home.
• Genuine bargains are selling fast.
• All vendors are losing money unless they bought more than 6 years ago.
• Flats are selling for 55,000 Euros, down from 100,000 Euros.
• Newly built flats in Denia are selling for 120,000 Euros, down from 220,000 Euros at the peak.
• Villa prices in Javea are dropping fast, though prices are more stable in Moraira. A fairly new 3-bed villa with a pool can now be had for 220,000 Euros, down from 280,000 Euros. Further inland, a villa with similar features can be had for 170,000 Euros.
• You can find whole blocks of flats unsold and empty, even within 500 metres from the beach. There will be a glut of flats for years to come.
• “It’s very hard to selling anything above 500,000 Euros right now,” says Scriven.

COSTA BRAVA
According to Tom Maidment of Lucas Fox (www.lucasfox.com):

• “There is a bit of a standoff between buyers and vendors,” says Maidment. “Buyers are all looking for a bargain, for discounts of 30% to 40%, but many vendors are still sticking to their guns.”
• When prices do come down, properties sell for from 15% to 20% cheaper than 12 months ago.
• “We sold a property last week when the vendor dropped the price by 30%. At that price there was plenty of interest.”
• There are few British buyers around, but British vendors are in hot demand. “They can drop their price more thanks to the weak Pound,” explains Maidment.
• Active buyers now come from the Eurozone and, in parts of the Costa Brava, from Russia.
• “Buyers are looking for a holiday home in beautiful area, which is what Costa Brava does best,” says Maidment.
• “Our sales are mostly villas in the Begur area for between 500,000 and 750,000 Euros,” says Maidment. “Not much is selling above 1 million Euros.”
• Buyers today are picky, and they won’t be rushed.

MALLORCA
According to Martie Quick of Engel & Volkers (www.mallorcasouthwest.com):

• Demand has fallen significantly, particularly the British. The market is not dead, however, and there are still European buyers around.
• The Germans are now back up to 50% of the market, after several years of playing second fiddle to British buyers. “Germans are canny and cautious buyers,” says Quick, and they like to see good quality build.
• The circumstances of the vendor are key to what will sell, and British vendors are now the most sought after. “Owners are now more important to us than properties,” explains Quick, who is looking for serious vendors prepared to be realistic about prices. “If we’ve got people who need to sell, we have buyers who will come to buy.”
• When prices come down 30 to 35%, buyers move fast, often in just 48 hours.
• Prices at the lower end of the market started falling at the beginning of 2008, and asking prices are down 10-15% in the last 6 months alone. Sales prices are down 20-25% in the last 12 months.
• Prices for high-end property only stated falling at the end of 2008, after the collapse of Lehman Brothers. Demand for high end property has slowed right down.
• The action is at the cheaper end. “Buyers who were going to spend 1 to 1.5 million Euros are now spending 400,000 Euros,” explains Quick. “But that gets them a piece of Mallorca, a base from which they can still go hiking in the mountains, or go to the beach, or enjoy the Old Town of Palma.”
• You can now buy, for example, a 2-bed, 90m2 flat in the South West of the island with marina or sea views and parking for 250,000 Euros, down from 300,000 to 350,000 Euros.
• Or you can get a 3-bed semi on a golf course for 470,000 to 480,000, down from 650,000 Euros.
• But be warned, there is still a lot of property on the market at silly prices. Not all vendors are desperate to sell.
• Plots are offering the biggest discounts.
• “January was a good month,” says Quick. “Considerably busier than last year.”

MURCIA
According to Gordon Turnbull of Blue Med Spanish Properties (www.bluemed.net):

• The market action is now with Spanish buyers and British vendors. “In the boom years the market was about British buyers and high prices, now it is all about Spanish buyers and low prices,” explains Turnbull, who says that lots of sales fell through last year because banks lowered their valuations and loan-to-value ratios .
• The only British buyers still around are those who already have Euros, for example those changing homes in Spain. There are still some Irish buyers around, but they only after real bargains.
• British vendors are key to the market because they are the only ones offering prices that get buyers excited. “Many British vendors are selling at a loss, but with the weak Pound they do better out of the exchange rate,” says Turnbull.
• “For example, one British vendor is selling a 4-bed, semi-detached bungalow on a plot of 250m2, 100 metres from the beach, for 180,000 Euros, down from an asking price of 265,000 Euros,” explains Turnbull. “The vendor bought 4 years ago paying 155,000 Pounds, which back then was worth 220,000 Euros, and then spent more putting in aircon and a landscaped garden. He is going to lose a bit of money, but thanks to the exchange rate it’s not too bad.”
• “Another example: A British vendor bought off-plan 4 years ago for 134,000 Euros before taxes,” says Turnbull. “He spent money adding aircon and furniture, and then sold before Christmas for 85,000 Euros.”
• Spanish vendors are reluctant to drop their prices.
• Buyers are now getting the best value in 5 years, but only buying what they can see and touch, nothing off-plan.
• Many British buyers made bad investments during the boom. “A whole block of flats down by the beach was sold to British buyers, all using 100% mortgages and over-valuations, which meant no money down,” explains Turnbull. “The flats were very over-priced, the agents and developer made huge commissions, and the British buyers, who took on big mortgages, are now in negative equity.”
• Demand for inland golf projects in Murcia had retreated with British buyers. Spanish buyers are not particularly interested in this product; they prefer to be near the beach, and don’t like the cost. “A golf development is an expensive place to own property, what with community fees and maintenance costs,” explains Turnbull. “And many of the golf developments have been very densely built, which turns off everyone but holiday home buyers. And let’s face it, some of them were only built where they are because the land was cheap.”
• “The asking price for a resale, fully furnished, 3-bed, frontline golf villa on Mosa Trajectum is down from 550,000 Euros to 300,000 Euros,” says Turnbull. “And Mosa Trajectum has the advantage of being just about close enough to Murcia City to attract Spanish buyers looking for a principal home.”
• Prices in Murcia City fell by 15% to 20% in 2008.
• Prices on the coast are down 30% in 12 months. For example a typical 2-bed flat with parking, walking distance to the beach, is down from 180,000 Euros to 120,000 Euros.
• Prices will continue to fall in 2009. There may be an improvement in some segments in 2010.

BARCELONA
According to Alex Vaughan, of Lucas Fox (www.lucasfox.com):

• There is a lot of interest, viewings, and offers, mainly from international buyers.
• Even so, there is a gulf between what buyers are prepared to pay and what vendors want. “The key to success is to find the right vendor,” explains Vaughan.
• Where there are sales, they tend to be at prices 15% to 30% below the early-2007 peak.
• Some vendors are in distress, and in these cases properties are selling for levels last seen back in 2001.
• “People who bought 5 or more years ago can still turn a profit if they sell today,” says Vaughan.

Forecasts

According to BBVA, a Spanish bank, property prices will fall 5% in 2009, and 10% in 2010. Between 2009 and 2011 the bank forecasts that prices will fall 25% in real terms.

Foreign banks such as UBS and Credit Suisse forecasts that prices will fall by 30% before the market turns around.

My best guess is an average 20% decline in sales prices on the coast in 2009. Note that this is an average forecast. Some properties – the most sought after in good locations – will do much better, and some will do worse.

Conclusion

During the boom Spanish property prices were fuelled by a virulent mix of cheap credit and speculation, which inflated a bubble.

The credit crunch triggered by the US subprime mortgage meltdown put an end to that, and the bubble has now burst (it was going to burst one day anyway).

But the hangover from the credit binge is a mammoth housing glut, especially of second homes on the coast, and frightening levels of mortgage debt, which means lots of negative equity as house prices fall.

Given the extraordinary nature of the financial crisis and subsequent deleveraging process, this may turn out to be anything but an ordinary housing bust. It could get a whole lot worse.

At the very least, property values now have to return to (or under-shoot) their long-term affordability level of 4 times average disposable household income, down from the recent peak of 7 times income.

Prices for holiday homes may fall even further. After all, who really needs them?

Yet many vendors are still in denial, and continue to ask silly prices, even though they don’t sell. That means that average asking prices are a poor guide to property values. There is a gulf between what many vendors are asking, and what properties are actually selling for.

But, thanks to British vendors in distress and the weak pound, there is now a reasonable choice of properties coming onto the market at sensible prices. With their have-to-sell discounts, distressed British vendors are driving the market in coastal and inland areas where foreigners tend to buy.

As a result, some genuine bargains can now be found, though potential buyers will need to do their homework to find them. You can rest assured that unscrupulous types are now busy trying to sell overpriced ‘bargains’.

Despite a recent fall in Euribor, mortgage default rates are expected to surge in 2009. This will create a big headache for mortgage lenders, and it remains to be seen how they will deal with it. It could lead to a surge of discounted properties on the market.

If so, we might soon see some mouth-watering opportunities for buyers, and, at the very least, it should be possible to find good value in Spanish property over the next year or two.

But be warned, some badly developed areas have no future at any price, and there are still plenty of pitfalls to buying property in Spain. Also, there is more to many of the “opportunities” than meets the eye. As always, stick to good locations and the best new developments.

Appendix

Two videos to give you an idea of how some parts of Spain were developed during the madness of the construction boom. One video shows Marina D’Or, a development on the Costa Azahar, and the other Soto de Henares, an urbanisation in Torrejón de Ardoz, near Madrid.

Marina D’Or

Torrejón de Ardoz

Mallorca, February 3rd, 2009

The last quarter of 2008 represented one of the most challenging yet for the island’s largest network of international estate agents, Engel & Völkers, specialising in the luxury second home market. Most areas reported sales down between 30-35% in the last quarter of 2008 compared the same period in 2007. Furthermore 2009 is set to remain difficult with anticipated sales down around 20% over 2008. The only area which has proved to be the exception is the south east which has had its best year yet.

This year started with more market movement than at the end of 2008 and now owners are more willing to negotiate to close deals. British owners, in particular, are in a strong position to negotiate if they are taking Euros home and some will discount up to 20% and still make a profit on their sale.

According to the Financial Times (27 December 2008), Mallorca was highlighted as one Spanish area to safely invest in 2009 because of the island’s balanced supply and demand situation which is driven by strict controls on new development, easy access and a sophisticated infrastructure.

By Region

In the south west, which includes some of the island’s most popular areas to own a second home, there is little interest in apartments and most recent sales (over 50%) are for villas, which is why the average purchase in this area is around the €1 million mark. British buyers have dropped by 50% and the main buyers at present are German, Scandinavian, Swiss and Spanish.

In Palma, the market slowed right down at the end of last year and has only really started to re adjust to the market conditions by approximately 10-20% below the original asking price. As a result the market is moving again. According to Terence Panton, Managing Partner of E&V Palma; “January started to look more positive with some recent sales to Swiss, German, Russian and Scandinavian clients. The main vendors tend to be local or foreigners that need to sell. British vendors can be very competitive at present when converting Euros back into pounds sterling “.

Nils Haase, Managing Partner in the south east says; “2008 was our best year yet with sales up by approximately 20% selling mainly fincas and villas. To date, our area has not been affected by the global financial crisis. We’ve had a busy period between Christmas and New Year with lots of viewings and our last sale of 2008 went through on December 30th “.

In the north they are currently receiving many inquiries. In this area those vendors who want to sell are now more realistic and are willing to negotiate at anything between 10-30% below the asking price. Christian Czarnetzki, Managing Partner for E&V North says; “I suspect we are nearing the bottom of this crisis and I feel confident that the market will start to move again by mid 2009”.

Dieter Funk, Managing Partner in the north east, says; “In the latter half of 2008 the market died in this area and the New Year has started with a small trickle of activity. Although property prices have come down by approximately 10-25% since last year, owners here are reluctant to negotiate well below the asking price. “

Says, Managing Director E&V South West, Daniel Chavarria Waschke; “Although its too soon to predict exactly what will happen this year if we have passed through the worst of the global financial instability, clients will start to look once more for safe investments in bricks and mortar.

We are working hard with owners to sell their property at the right market price and although it is a buyer’s market, vendors will not sell here at silly prices, they would rather wait”.

On the market

North
Delightful town house in Pollensa old town which has been tastefully refurbished. Approximately 239 sqm constructed area plus large outside terrace area with views to the mountains. Price: €675,000. Ref: 1169028

North East
A four bedroom villa with large swimming pool, terrace and views to the sea located in Font Sa Cala. Constructed area of 296 sqm. Price: €850,000. Ref: 1091434

For more information visit www.engelvoelkers.es/mallorca/

Mallorca Property Market Overview 2008

First of all, a look back at Mallorca’s property market in 2008.

The beauty of Mallorca

2008 proved to be a remarkable year. You could say that it began on an upbeat note, as of January 1st, the annual Wealth Tax (Impuesto sobre el Patrimonio) was abolished, which was welcome news. Furthermore, the tourism secretary Amparo Fernandez announced that central government had granted 50 million Euros towards the Mallorca tourist industry – part of the Horizon 2020 programme. Tourist figures in the first quarter showed a 3.1% increase in comparison to 2007 and annual visitors were set to increase.

Also in January, the Balearic government gave the green light to a 660 million Euro investment to improve and expand the rail network over the next four years.

Unfortunately, as spring approached the mood was less than buoyant. With Euribor spiralling upwards, banks began clamping down on mortgage lending and the first quarter figures showed the average price of resale property had fallen by 1.1%.

Until early summer, there were still strong denials that the island had been affected by the general downturn on mainland Spain and the costas, where the unsustainable construction boom over the last five years had led to an explosion of low and mid range apartments which are now difficult to shift. Property professionals argued that a number of factors had kept the supply levels in balance with demand, amongst which were:

* The availability of plots of land where licences may be granted for new apartments is decreasing rapidly, especially in the southwest, the most popular area due to its excellent infrastructure and proximity to the city of Palma. In Puerto Andratx, noted for its picturesque, wide bay at the end of the dramatic Tramuntana chain, developers have been forced onto smaller and smaller sites with difficult access and none too favourable orientation. It has now reached the point where they are sourcing land elsewhere, notably the southeast around Porto Colom and the east coast, north of Porto Cristo.

* There are two distinct markets in Mallorca, the discriminating overseas buyer and the local spanish market. According to figures from the Observatorio Joven de Vivienda en Espana, property in Mallorca had become completely out of reach for young, first time buyers. Their current average monthly salary is €1,182 yet a typical mortgage repayment of one third would not buy a studio. Yet these often characterless complexes of 150 units or more in the Palma suburbs were not the type of development typically attractive to overseas buyers. Of cheap construction with tiny balconies there is often no communal outside space or facilities.

In June, Mallorca’s largest developer, Grupo Drac, failed with estimated debts over 600 million Euros. (Its owner, Vicente Grande, was also the largest shareholder of Real Mallorca football club). In July, Fadesa followed and we began to see real price competition with cuts of up to 30% on some of their developments. Second quarter agency reports confirmed that the apartment market was suffering

Taylor Woodrow were one of the first overseas developers to offer reductions at Pollentia Mar in Puerto Pollensa – two and three bedroom apartments set 50 metres from the beach, set in landscaped gardens with community pool. Starting prices were openly reduced from 254,000 to 210,000 Euros. On the east coast, where it will take time for the infrastructure to improve, they were accepting offers 20% below asking prices.

During the summer, tourists were pouring into Mallorca as usual. Most agencies reported that sales were down, though at the 1m Euro mark and above, values were higher. In the light of the strengthening Euro, German buyers now outnumbered the British by 3:1. Official figures in September for the third quarter showed prices in Palma city had dropped 5.7% in comparison with September 2007 and new property sales fell by 20% in comparison with the same period.

On 15 October, Mallorca’s 16th Habitat trade fair opened amidst the backdrop of global financial recession. The property sector and the Balearic government put on a brave and united front despite a drop in exhibition stands to 67, down from 126 the previous year.

During the autumn, with dwindling numbers of British buyers, agencies dependent on apartment sales in the south west, particularly Nova Santa Ponsa, with its high concentration of communities, began to cut prices by 10-15%. A few closed their doors (not necessarily a bad thing – at the last count there were 35 inmobiliarias in Port Andratx alone).

Towards the end of the year, there was still little movement in mid range detached houses (up to 2m Euros) and with no buyers on the horizon, the number of properties offered for long term rental was steadily increasing.

The good news in November was that the 12-month Euribor had finally fallen to 4.07, the lowest since spring 2007. It was also set to fall further into 2009, which was some comfort to existing Euro mortgage payers who had seen repayments creeping up steadily for the past 18 months. At the prime end of the market, it was also looking good. Those British buyers still coming tended to be the biggest spenders and published asking prices were still firm.

Mallorca Property Market Forecasts for 2009

PALMA DE MALLORCA PROPERTY

Palma Portixol

Palma is a chic, safe city with a medieval quarter. Only ten minutes from the airport, it’s fast moving upmarket and proving as attractive as ever to Eurocommuters. 24% of its 413,780 residents are non Spanish and of these, 36,743 are from the EU. It’s extremely easy to find your way around and to park though many city buyers happily dispense with a car and rely on public transport and the taxi services. Palma city council has also introduced a bicycle lending scheme operating from the Parc de Mar.

A state of the art underground vacuum system whisks away city rubbish, and with the introduction of heavy fines for littering, the city has become altogether a cleaner place to live.
The planning department is determined to create more grass zones and pedestrian areas, forcing vehicles underground into hi-tech carparks which guide you to vacant spaces with green lights.

There has been an ongoing battle whether the bronze panelled 70s GESA building would be demolished to make way for new apartments on the waterfront but finally the council won and it now has protected status – it will remain, surrounded by 36,000 sq metres of split level park (“like a green lake” according to the architect Antoni Barcelo) under which will be a new underground carpark for 925 cars and 200 motorbikes.

The first phase of the island’s new metro system, connecting the main railway station in Plaza Espana to the university, finally opened in July. The design for the much awaited Palma to Arenal tram will go on public display in January 2009. The line will run from the main station via the Avenidas to El Molinar, Coll d’en Rabassa and along the sea front to Can Pastilla where there will be a branch to the airport. It’s estimated that work will begin early 2010.

A third lane is to be added to the Via Cintura ring road on the stretch from Valldemossa to Genova. In Palma, there are 756 vehicles for every 1000 inhabitants.

In the old city, renovation programmes are still in evidence, with facadism often favoured (a compromise between demolishing and rebuilding, retaining the front elevation) sometimes incorporating the typical Mallorquin, glazed “winter balcony”. In this case, developers take the opportunity to install a lift.

Traditional features (terracotta tiling/wooden beams/Santanyi stone window surrounds) bump up the price. Outside space and open views are not easy to find so lofts and penthouses are costly as are apartments in palacio type buildings with courtyards. Prices range from €2500 to €6500 per sq metre.

• Calatrava is a historical area of labyrinthine streets surrounding the cathedral. Residents can apply for cards to barriers (hydraulic bollards) if they’re lucky enough to be part of the 5% who have a parking space in the old city.
• La Lonja, formerly part of the harbourside scene is a lively, trendy district with lots of bars and restaurants.
• Santa Catalina surrounding Catalina market has become hugely in demand, with its café culture and bistros.
• Prices have risen sharply in Portixol on the eastern fringe of the city. Frontline fishermens’ cottages command top prices if they ever reach the market. Molinar and Ciudad Jardin just along the coast offer an alternative though parking is still restricted.

The character of Palma de Mallorca

Across from Portixol harbour, a very ambitious project is well underway. Palma’s 125 million Euro congress centre will change the look of the waterfront. Scheduled for completion at the beginning of 2011, it will provide a central auditorium, several conference halls with a capacity of 2,400 delegates, a café and hanging gardens overlooking the bay of Palma. Alongside this will be a 9 storey, five star hotel with pool, gym, spa, bars and restaurants. The winning design, awarded to spanish architect Francisco Mangado, resembles a gigantic fish on the shore, with laminated glass panels like shimmering scales.

SOUTH WEST MALLORCA PROPERTY

The southwest corner of Mallorca is the most developed. Prices are higher due to its infrastructure and proximity to the best golf courses, marinas and Palma. All the international schools are also located in this area which offers all year round life and is not centred for the most part around tourism.

The most popular stretch runs from Bendinat/Puerto Portals via Santa Ponsa to Andratx. The motorway extension to Paguera which cut the journey from Palma to Puerto Andratx by ten minutes in 2007, has generated more interest in S’Arraco and opened up San Telmo further west.

The municipality of Calvia has been growing steadily and the population now stands at 53,046, a third of whom are foreigners with 11% of these British. In July, Calvia council opened the Galatzo estate (outside Capdella village) to the public, having purchased it for 9 million Euros in 2006. Together with the 17th century manor house, there are several hiking routes, mountain bike trails and picnic sites. It comprises 14 million square metres (3,640 acres).

February 2009 will see work begin on a new electricity substation in Santa Ponsa which will take a 237 km long power cable from the island to the mainland (Morvedre power station in Valencia). The 375 million Euro project will take 2 years and is the first of its kind in Spain. The new link will act as a back up in case of power outages and also cut the carbon emissions by 1.2 tons annually.

The Balearic government has issued a demolition order for eleven partially constructed apartment blocks in Montport, Puerto Andratx. The development came under scrutiny last year after a property scandal disgraced the mayor, Eugenio Hidalgo and head of planning Jaume Massot for having granted the licences on protected land (Hidalgo was subsequently sentenced to 4 years’ imprisonment). The construction company, Prosmi SL, maintains that 50 of the 68 apartments had already sold, entirely to investors in Tarragona.

Also in Andratx, a new desalination plant opened in Camp de Mar in July at a cost of 16 million Euros, 54% of which was paid from EU subsidies.

If you are looking for property in the SW, the best frontline locations were all taken in the late 80s, early 90s, so if you want a good seaview, you will have the choice of buying new at considerable cost in a second rate location, or buying something older in a great spot which may still need renovation. Good plots for construction are virtually non existent.

Expect to pay at least €395,000 for a two bedroom apartment, more if it has seaviews. An apartment with frontline seaviews may cost €475,000 upwards, and possibly need some renovation. You will also pay a premium for renovated apartments overlooking a golf course. Fincas and detached properties with seaviews now fetch €1.2m upwards whilst villas in highly desirable locations such as Puerto Andratx cost €1.5m – €3.0m and more.

NORTH WEST MALLORCA TRAMUNTANA PROPERTY

This is Mallorca’s most dramatic region, dominated by a chain of craggy, limestone mountains stretching from Andratx to Pollensa. Impressive peaks rising to 1,500 m and plunging sea cliffs are intercepted by sheltered valleys of olive or citrus groves and picturesque villages. Frequently referred to as the “other Mallorca”, it’s a walker’s paradise.

Soller and its picturesque Port have been undergoing a transformation and fast going upmarket. Following the opening of the toll tunnel to Soller, prices began to rise in the area. The naval base and workshops were demolished, the harbour restructured and a second tunnel (Sa Mola) opened in 2007, taking traffic away from the seafront to make way for a pedestrian only promenade . The only exception is the antique tram which runs from Soller town to the port, the last remaining tram in service in Spain. Further investment of €3m provided wooden decking for the harbourside restaurants.

Lighthouse at Soller

There is no evidence yet of any work in progress at the Sa Talaia site, an unfinished structure dominating the skyline on the clifftops above the port. Bought by the Wingfield Corporation in 2007, the Jumeriah group (running Burj Al Arab in Dubai ) are reported to be creating the “most luxurious hotel in the whole of Spain” with 120 seaview suites. This would indeed give a terrific boost to the local economy.

Deia and Valldemossa are the famous, picture postcard mountain villages in the northwest. A stone townhouse may cost €285,000 upwards, but expect to renovate. A traditional, renovated stone townhouse with outside space will need €385,000 upwards. Detached fincas can be found from €600,000 but those which have been renovated with charm and character, a pool and sea views will need more than €1.2m.

NORTH MALLORCA PROPERTY

Since the completion of the Inca-Sa Pobla motorway section in summer 2007, the journey from Palma to Sa Pobla now takes only 25 minutes and you can be in Pollensa in 35 minutes.
There has been a lot of controversy this year between the council and residents. The seafront section of the Old Wharf in the port is finally to be converted into a pedestrian only area. There is another project being drawn up to raise the Pollensa-Alcudia road and extend the beach.

The famous, frontline hotel Formentor has also been in the news. Constructed in the 1920s by the Argentinian Adan Diehl, its foyer is lined with photos of 1950s celebrities who stayed there. Now, plans have been drawn up to give the hotel a facelift, increasing the number of rooms from 103 to 247, and adding a new spa and vast pool area. Its legendary gardens and steps down to the water will remain but there is some debate whether additional detached bungalows would be permitted. The battle continues for planning consent

In Alcudia, the world famous Richard Rogers was one of several architectural firms to put themselves forward to lead the planned conversion of the Alcudia power station into an Arts and Science Museum with library and auditorium. The project was finally awarded to Alonso Hernandez and funding is now being sought. The front line site, adjacent to the Port of Alcudia and at the entrance to the sought after Alcanada residential area, has been an abandoned eyesore for years and this will provide a major boost to the town.

NORTH EAST MALLORCA PROPERTY

Unlike Pollensa or Cala D’Or, which are popular with UK tour operators and villa rental companies, the north east of the island around Arta is not well known amongst UK buyers.
You can now reach the pretty town of Arta in the north eastern corner in 55 minutes on excellent roads from Palma. As you leave Manacor northwards, the C715 runs through picturesque orchards and pastureland. The town is surrounded by the ancient hunting grounds of Mallorcan royalty, with the peaks of the northern Serra de Llevant mountains as a backdrop. It’s rarely troubled by the coastal package tourists, there are four golf courses in the vicinity and some of the region’s most secluded beaches are close to hand north of Cala Ratjada.

Prices at the beginning of 2008 were still 10-15% cheaper than elsewhere on the island. However, this was set to change. Arta’s rail line was decomissioned in 1977 but the Ministry of Transport approved a 110 million Euro project in January to rebuild the network link from Manacor to Arta. Work is scheduled to begin in summer 2009.

In addition, the American Hyatt group announced plans in March for a new five star Park Hyatt hotel in Capdepera, scheduled to open at the end of 2010. This spring, the old Hostal Cuevas on the seafront at Canyamel was redeveloped and reopened to the public with a seaside restaurant and beach club.

INLAND MALLORCA PROPERTY

Mallorca’s first Hilton hotel opened its doors in June, the Hilton Sa Torre, south of Llucmajor.

For golfers, there are now 25 courses, the most recently opened being Son Gual (off the Palma to Manacor road). Under pressure from environmental groups, plans for further courses, such as Son Baco (Campos) and another in Santa Margalida have been shelved by local councils.

Mallorca's emblematic windmills

Still on the sporting front, Mallorca attracted 87,000 cyclists last year and this figure is predicted to increase by 10% over the next 2 years. Cycling clubs use the island for training in the shoulder months which brings in further revenue out of peak season. There are now 311 km of signposted cycling routes and Mallorca’s latest sports facility, a world class velodrome, hosted the track cycling world championships in March 2007 when the British team won 7 world titles.

It is no longer the case that property in the centre of the island is cheaper as the road system is continually improving. Furthermore, fincas for renovation are in short supply. A complete ruin with 8,000 sq metres of land will still fetch €160,000. A word of warning – over the years, the local custom of “adding on” without planning consent has resulted in some enormously appealing fincas, but thorough research and legal checks should always be made.
Traditional, stone faced village properties needing renovation cost €275,000 upwards and renovated houses with gardens and good views from €375,000, depending on area.

PROPERTY IN MALLORCA’S COASTAL AREAS

More than ever before, regional government is working closely with environmental groups to ensure the island does not succumb to over development and to protect its 555 kilometres of coastline. This is a delicate balance in view of Mallorca’s heavy reliance on the tourist industry – the service sector accounts for almost half of Mallorca’s businesses.

Bidding for the colossal regeneration project at Playa de Palma (the coastal area SE of the city) was won by West8, a Dutch company of 75 architects with international recognition for urban planning and having remodelled the waterfront in Toronto as well as the city parks on Governer’s Island, New York. The project is enormously complex and involves demolishing old hotels and injecting life into 6 kilometres of seafront between Arenal and C’an Pastilla. It has to take into account the wetlands of Ses Fontanelles behind the beachfront which will now be protected, and the new tram lines which branch north to the airport. West8’s founder, Adriaan Geuze, has a vision of it “surpassing the Alhambra” whilst local politicians think more along the lines of “a European Copacabana”.

A study by the Ministry for the Environment in Madrid in November 2007 reported 730 infringements against the coastal regulations in Mallorca. The majority involved pools, beach kiosks, carparks or hotels fallen into disrepair or ruin. Local government began taking measures to enforce the report’s recommendations and recently the first private landowner in Soller was fined 18,000 Euros for erecting a wire fence and posts which prevented walkers access to the coastal footpath between Alconasser and Bens D’Avall.

Mallorcan coastline

At the same time, specific areas have been targeted where no further licences for urbanisations are to be granted, notably Can Vairet (near Port Adriano in Calvia), Muleta in Soller, Cala Marcal in Felanitx and El Vilar in Pollensa. Montport and Cala Blanca in the municipality of Andratx are also affected. Furthermore, a part of the half island of Alcanada (Alcudia) is to become protected, bringing the total land area affected to 1,516 hectares.

In the nautical sector, Mallorca now rivals Antibes as the superyacht hub of the western Mediterranean. The island now features over 16,000 berths backed by a skilled workforce to repair and refit throughout the year. There are plans to expand 8 of its 32 harbours, namely CV Puerto Andratx, Cala Gamba, S’Estanyol, Colonia de Sant Jordi, Porto Colom, Cala Bona, CN Cala Ratjada, and Puerto Soller, providing up to 4,500 more berths. In Porto Colom, whose wide, natural bay some have likened to Puerto Andratx, port authorities are increasing the number of moorings from 52 to 130.

In Port Adriano, a €40m expansion project is well underway and the new breakwater quay is starting to take shape. The designer Phillipe Starck is leading the team in the design of the service areas and shoreside facilities which will encompass 4,000 sq metres. The marina will be able to accommodate 82 more berths and there will be 472 new parking spaces.

In Puerto Pollensa, plans are awaiting approval to do away with a third of the parking spaces on the old wharf to make way for 100 new moorings for small craft. If given the go ahead, the seafront dry dock will be moved to the yacht club.

The introduction of “eco mooring” has proven extremely popular. Mooring buoys have been set up in 4 locations around Mallorca (Cala Blava, Sant Elm, Porto Petro and Punta Avancada off Pollensa) in order to protect the seabed meadows of Posidonia grass which are key to the stability of the island’s sandy shorelines.

According to statistics, Palma ranks third as a cruising destination in the Mediterranean behind Barcelona and Civitavecchia in Italy. An investment of €23m was announced last year to build a new jetty in Palma’s West Quay to enable two cruise ships of up to 380 metres long and 30 metres wide to dock at the same time on the same quay. This project will further encourage the “mega” cruise ships to visit Palma and is scheduled to begin operations in Spring 2009.

Work continues on the new passenger docks in Alcudia, the second largest cruise ship terminal on the island. It currently takes around 160,000 passengers annually and this is set to increase to 500,000 when it is completed in summer 2009.

MALLORCA PROPERTY MARKET OUTLOOK FOR 2009

To begin on a positive note, 65% of the Balearic workforce is involved with tourism and Mallorca is still considered one of the top spots in the Mediterranean. In March, the Sunday Times pronounced Cala Mondrago (SE coast) one of the 10 best beaches in the world, and in November, the island was awarded 2nd place behind Barbados in the beach holiday category of the British Travel Awards. Foreign tourism in 2008 was more lucrative in the Balearics than any other area of Spain. People will continue to escape to the sun irrespective of global financial outlook, and some of the unemployed from the construction sector may just sidestep into jobs within the tourism industry.

Furthermore, the Balearic Ports Authority reported that between January and September 2008, the port of Palma had been visited by more than 500 cruise ships carrying a total of one million passengers, and by the time 2009 came around, another 100 were expected. The cruise sector is still very healthy, with a growth of 6% predicted.

Reports in November from the World Travel Market in London (one of the first market indicators for the holiday industry) were also forecasting a much better 2009 season than expected, with bookings up 20% from the previous year despite the strong Euro.

As outlined in the overview, there are some massive projects on the drawing board, already approved and funded, which will not only create jobs in 2009, but will improve infrastructure for both residents and visitors. These are already attracting yet more investment to the island, for instance from international hotel groups who are providing sophisticated conference facilities and who see Palma as a competitive business destination – the British held more than 400 conferences on the island in 2008, an increase of 30% over the previous year.

This all suggests a certain market confidence for the future and the more people who get to know Mallorca and what it has to offer, the better – in time, these will be the property buyers.

What will happen to Mallorca property prices in 2009? It’s difficult to predict accurately since statistics often don’t reflect the reality (the Spanish Housing Ministry is wildly out) and there are countless bodies representing the construction industry, selling agents, notaries, lenders, valuation companies, surveyors and so on, all with professional but differing opinion. One thing is crystal clear – after a decade long boom with property routinely overvalued, the market is now sliding and realistic pricing will be the order of the day.

SELLING PROPERTY IN MALLORCA IN 2009

• Mallorca is very much geared to second homes so people who don’t need to sell may likely sit tight and wait for the market to pick up – many estimate this won’t happen until sometime in 2010 or beyond.
• Vendors who need to sell may be able to renegotiate their mortgage terms but more likely they will have to adjust their expectations on price. There are already a few opportunities as repossession looms – in Bendinat, two seaview apartments bought side by side for 2.5m Euros and joined into one, creating a five bedroom property, where the owner is prepared to accept 1.5m Euros. An apartment in Casco Antiguo, the old city of Palma, which was on the market for 1.1m Euros, going for 600,000 Euros. A new build in Puerto Soller reduced from 1.5m Euros to 1.2m Euros which according to the agent might go for 995,000 Euros.
• In the meantime sellers could offer their property for rental, though the listings have swollen noticeably in the past three months. The Mallorca Magazin (the local German language weekly) has an unprecedented number of listings but even here the rates are gradually falling. A four bedroom, stone faced, character property in the highly sought after village of Capdella in the rural southwest, asking 4,750 Euros per month in August has dropped to 4,000 Euros (its asking price has similarly dropped from 1.9m Euros to 1.75m Euros).

BUYING PROPERTY IN MALLORCA IN 2009

• Buyers in Mallorca are mainly “lifestyle purchasers” and it’s unlikely this will change. Rather than a holiday property, the majority are looking for a “home from home” and the island still offers that bit more. Together with all the general benefits of buying in Spain (short flight times from European destinations, an outdoor lifestyle, a safe child and family friendly culture), the island has a definite microclimate, superlative healthcare and sophisticated leisure choices which are constantly being improved. This remains a highly attractive package.
• As always, front line will remain an excellent investment, especially if there is direct access to the sea. Highly sought after, there are less and less properties available for renovation. Caution is needed, as coastal authorities are exercising their powers of jurisdiction.
• Recession or not, quality builds in the right locations will continue to be in demand and the “super prime” clients are still out there. The British Superyacht industry is booming – many of the Dutch and German Superyacht builders have full order books for up to five years – and their owners will also be looking at property ashore.
• 2009 will see some good opportunities on the market and will be an excellent time for buyers, regardless of the type of property you are looking for. Cash purchasers will have a distinct advantage and more negotiating power. However, expert advice will be crucial as you cannot lump all property together. There may of course be the odd “stress” sales but there are also municipal differences and much depends on quality of construction, exact location and whether there are comparable properties on the market. In this transitional phase, some vendors will have already adjusted their asking price whilst others will stay put, relying on negotiating when the time comes.

For more information on this report and the property market in Mallorca, or to find property in Mallorca please contact:

Jan Westwood
E: mallorca@thepropertyfinders.com
T: + 34 971 233 207
M: + 34 609 731 794
www.thepropertyfinders.com

Copyright Jan Westwood, The Property Finders (Mallorca)

Stunning views from property in Andalucia

Andalucía Property Market Report

First of all, let me explain why I am going to ignore the official Ministry of Housing statistics as a tool to analyse what is happening to prices in Andalucía – they are so unreliable as to be more or less meaningless! In fact, Spain’s Institute of Statistics also sees them that way and recently started publishing their own version so, in time, we may actually get some real numbers that mean something. Meanwhile, this is the official version at the end of 2008; apparently, taking the Andalucía region as a whole prices have risen 2% on an annual basis although the 3rd quarter did show a fall of 1.03%, and of the eight provinces in Andalucía only Málaga registered an annual decrease, a tiny 0.9%. So you could be forgiven for asking how is this possible, given that there is universal agreement that Spain’s property market is reported to be right up there with the U.S. and U.K. in facing something akin to Armageddon.

Depending on how much you already know about Spain, its property market and taxes, you may or may not be aware that historically, the price actually paid for a property and the amount declared in the title deed signed in front of the notary at completion were rarely been the same thing – the difference, 30% was common and sometimes even more, was paid ‘under the table’ in cash. Incidentally, this practice was blamed in the recent revelation by the tax authorities that they suspect that 54 billion €s worth of 500 € notes are tucked away under Spanish mattresses; rather than being in general circulation they just move from property transaction to property transaction! But the fact is everybody did it and the ease with which was done led to Spain becoming a world leader in money laundering via property deals but finally, due in part to the spectacular ‘White Whale’ scandal which erupted in Marbella in March 2005 but also better co-operation and information sharing between tax authorities world-wide, legislation to do away with the practice is now place. Lawyers are now very wary of being involved in under-declaration as they can be held liable and slowly, deals are finding their way to the notary with the full amount being declared and therefore, a higher price is registered than would have been the case previously. So, it isn’t that prices are still rising in Andalucía, it’s just that fully declared prices are so very much higher than the previously artificially suppressed levels but I would suggest it is going to take some time before we can read Ministry of Housing statistics without sniggering!

Classic Andalucian property

What we do know

We know that many of the main players during the boom years have disappeared. At the height of the bubble there were approximately 7,000 estate agents in Andalucía; 3,000 had already closed by the end of 2007 and if the regional trend replicates the national trend then about 65% will have gone by 2009 and they won’t be missed. However, the professional, long-established agents will survive, just as they survived the last downturn in the early 1990s. We know that so called investors, those who bought one or more units with the sole intention of ‘flipping’ the contract, that is, selling on during construction, have completely disappeared and will not be missed either. Why so many people thought that they could purchase small, identikit apartments off-plan in a high-density complex and then sell them during construction for double what they paid is beyond me, but thousands did and are now desperate to unload. We know that some of Spain’s biggest developers and property companies, such as Martinsa Fadesa, have gone into administration, and those that are still afloat are no longer in denial although in my view the price reductions they are now offering seem to be too little too late. They would have done better to start the discounting in 2007 and now, 30% doesn’t seem enough. We also know that the fall in numbers of planning approvals and new house starts accelerated in during 2008 and will continue in 2009, indicating that the stock of unsold new properties could begin to reduce quite quickly once completions of those already in construction has fed through. And we know that all of the above has been exacerbated by the credit crunch.

However, I still believe that much of the media comment during 2008, the banner headlines predicting doom, gloom and disaster across the board has been incomplete and somewhat misleading because it concentrated almost exclusively on new-build property development and failed to differentiate between the different property sectors and different regions. It makes for great headlines but not much else. Certainly, there is significant oversupply of certain types of property in some areas but the real problem is that the majority of unsold property is in high-density developments of 100s of identical units, often in undesirable locations with no infrastructure that no discerning buyer would want, at any price. But in the quality resale market it is not so much about over-supply but more a factor of how badly and how quickly does the seller need to get out that is driving the market. For example, in 2008 it took me two months to find just one house to short-list for a client wanting a house at Tarifa and we managed to get just 3.5% off the asking price. The sellers were keen to sell but they didn’t have to sell and there is no surplus stock in this area. Another possible house I viewed for the same client sold for the asking price about 3 hours after I had seen it. Hardly indicative of a market going off a cliff!

Countryside around Gaucin

Andalucía is Spain’s largest autonomous region, covering nearly 20% of the Spanish mainland and is bigger, in fact, than several E.U. countries. So it should come as no surprise to find differences in the property markets in the eight provinces that make up Andalucía, ranging as they do from the affluent coasts of Málaga province to the less well-off rural interiors of Jaén and Huelva. In effect, there a several property markets across the region and it makes more sense, therefore, to look at the different sectors separately. First of all, let’s get the old chestnut out of the way.

The Marbella Story, cont’d….

The fall-out from the damaging corruption and illegal building scandal that broke in early 2006 continues but seems to be reaching its conclusion. The new schedule of planning laws, the PGOU or Plan General for short, has been agreed at local level and is slowly heading for ratification by the regional government in Seville. It was the lack of regional approval for the many revisions of the 1986 Plan General submitted by the former mayor in Marbella, Jesús Gil, during the 1990s that led to the chaos in the first place; when his revisions were rejected in Seville, he just granted building licences anyway, although the projects clearly contravened the planning regulations as they then existed, usually in respect of development of green zone land and density levels. The new planning regulations will set out how the western Costa del Sol develops for the next decade and beyond.

We now know that the overwhelming majority of the estimated 30,000 illegally built properties are to receive retrospective licences but uncertainty still hovers over approximately 500 and there may yet be some symbolic demolitions. Also, in return for legalising the illegal properties the Marbella Town Hall is seeking compensation from the original developers who benefited and there is concern about what will happen if this is not forthcoming if, for example, the developer has gone out of business. The worry is that the authorities will then make financial claims on the residents of these developments. So the story still has some way to run, but the worst is over for the majority.

The Coasts

Andalucía has 900kms of coastline, 600 of which face the Mediterranean and 300 on the Atlantic side. Some coasts are very densely developed, others are barely touched. In most coastal areas there are two distinct sectors in the property market; firstly, the high density new-build developments, secondly, the quality resale sector and in my view they will continue to perform very differently in 2009.

The new-build developments first. There are still too many of them but, as already mentioned, the unsold stock will probably start diminishing during 2009. Properties are going to auction or being repossessed by banks while some developers are moth-balling future phases. If you are dealing direct with the developer I would urge caution and unless you are able to negotiate a very substantial discount then it may be advisable to hold off until at least 2010. However, we have had similar building booms in Andalucía in the past and buyers can be certain that the overhang will get mopped up, stability will return and prices will rise again but any buyer of a new-build property in 2009 must be absolutely convinced that the price is right, that the building licence and bank guarantees are verified by an independent lawyer and that they can finance the purchase without depending on rental income. However, buying a new-build doesn’t necessarily mean dealing with the original developer as I am finding a lot of what, at first sight, look like resales are, in fact, brand new. These are coming about because of the purchase of multiple units by one buyer, the so-called ‘flippers’ and having been unable to sell on during construction now find themselves servicing one or more Spanish mortgages they hadn’t bargained for. The properties may have been finished 2 or even 3 years ago but they are ‘as new’. In general, I find such sellers are desperate and more flexible than the developers.

Now, as for the resale sector, one thing that is always immediately evident in a market downturn is that there is a flight to quality and in this respect one needs to recognize that the coasts of Andalucía are not all the same; prices are much higher in some areas for very good reasons and in today’s market conditions buyers need to focus on the prime areas; in secondary areas you can expect prices to fall further and recover more slowly.

Costa del Sol

On the western Costa del Sol the prime area centres on Marbella and extends about 15kms to the east, to Las Chapas, and about 15kms to the west, as far as Estepona. Two big infrastructure improvements worth noting; already underway, the San Pedro underpass will relieve severe traffic congestion on the approaches to the town and the Ronda road junction, and the proposed rail link between Málaga and San Pedro, mostly underground, is the most ambitious project ever considered for the Costa del Sol. The golf industry is vital to this area; the spending power of the golf visitor far outweighs that of the summer tourist and it give the western Costa del Sol one of the few, genuine 12-month seasons in Europe. There is no ‘low’ season anymore.

Pool with a view

On the eastern Costa del Sol, Nerja is considered the prime resort but the lack of golf infrastructure means that this is primarily a summer resort and is noticeably quieter in the winter months. However, it does have the same wonderful winter micro-climate as Marbella and, over time, I can see Nerja developing into more of a year-round destination, particularly if the €33,000,000 marina with 500 berths and waterside shops and restaurants, is completed as planned by 2011.

Costa Tropical

Anyone who has been caught up in summer traffic on the old coast road between Nerja and Almuñécar is unlikely to want to repeat the experience; however, the motorway extension is now open as far as La Herredura and once completely finished, the journey time between Málaga and Almuñécar will be reduced to about one hour. This coast is extremely popular with Spaniards because of the easy access from Granada and Almuñécar is the prime resort, with great beaches and the chic marina, Marina del Este. In the Punta de la Mona area, wealthy Spaniards have been building their summer homes for the last forty years. Salobreña is a smaller resort but the time you get to Motril this coast becomes flatter and less desirable. As is the case in any area popular with the Spanish market, out of the main high season months things can be very quiet with not much going on.

Costa Almería

This, in my opinion, is the least attractive coastal option in Andalucía. Although there are some great beaches, much of the province is very barren and dry. And perhaps the greatest deterrent for the property buyer in Almería are the plastic greenhouses covering thousands of hectares across the province, including coastal areas. These have been very successful in increasing agricultural yields but are turning much of this part of Andalucía into a wasteland causing damage to the environment and hardship to small farmers who can no longer sell their crops. The buyer should be beware; a pretty view can very easily become an eyesore.

Costa de la Luz

Finally, it seems that the Costa de la Luz, with its stunning beaches, is coming into its own for the overseas property investor. Good access is vital for any property market and after lagging behind the Costa del Sol in terms of upgrading infrastructure there is now real improvement.

Sotogrande Marina, Andalucia

The important thing for potential property buyers to realise is that this is not the Mediterranean coast and the Atlantic influence makes for some differences. The winter climate is less balmy and often there is a wind that takes the edge of the temperature. In addition, as so many Spaniards own second homes for the summer on this coast many resorts have an abandoned feel out of the high season, and some bars and restaurants close at the end of summer. This can adversely affect letting potential so if there are still buyers out there who are looking to finance a mortgage with rental income they should be very sceptical about some of the occupancy claims made by estate agents and developers.

This western coast of Andalucía has always been popular with Spanish buyers, precisely because the climate is cooler and therefore, quality property in good locations is not cheap. In addition, very tight planning controls should limit further development in the prime coastal areas so prices should hold up well. Where development is allowed the result can be very high density. The prime resort on this coast is El Puerto de Santa María where prices are not much below those of Marbella, followed by Chiclana, Conil and Vejer to the east and Chipiona and Sanlúcar de Barrameda, famous for the horse races on the beach, to the west. Tarifa, which ten years ago was a relatively unknown shabby town, is now the hottest wind and kite surfing destination in Europe, totally unique in atmosphere, and with some of the most breathtaking views imaginable, across the Straits to the African coast.

Inland Andalucía

The infrastructure improvements of the last decade have demonstrated quite clearly that better access to an area drives property markets forward and impacts on property prices. Indeed, in % terms, the biggest prices increases of the last five years have not been on the coasts but in the most accessible country areas of the interior and the cities of Seville and Granada – on average doubling and even trebling in the very best locations. But, as with the coastal markets, the interior of Andalucía is not just one property market but several; in all, Andalucía covers about 87,000 square kilometres and it is inevitable that some areas have performed much better than others, some have really lagged behind and these differences will continue going forward.

Inland Andalucia

There are still hundreds of rural properties to renovate all over Andalucía and it’s easy to find inexpensive houses if you do not mind being miles down mud track, halfway up a mountain and facing north, with no chance of water and electricity being connected anytime soon. Finding well-located houses with good access, electricity and water and close to a pleasant town or village is more of a challenge but it is essential in the market conditions of 2009 to focus on good properties in prime areas.

Central Andalucía

The upgrading of Andalucía dilapidated roads and railways, barely touched during the Franco years, had to start somewhere and once the money started to flow after E.U. accession in 1992, this is region that benefited first. It is hard to overstate the impact that the road upgrade programme has had on property prices in the areas that have been opened up by improved roads, for example, the towns 20 – 30kms inland from the Costa del Sol such as Coín, Monda, Alhaurín el Grande and Álora, or those reached by the motorway heading north out of Málaga in the direction of Antequera. Journey times to villages such as Villanueva de Tapia, Iznájar and Villanueva de la Concepción have quite literally been halved.

Antequera, the geographical centre of Andalucía and at the crossroads of the Seville – Granada and Málaga- Córdoba mortorways, looks set to become an even more important regional hub now the Madrid – Malaga high speed AVE rail service is operational for which a brand new rail station has been built just to the north-west of town. I expect continued strong demand for property of all types in Antequera and surrounding countryside from both the Spanish and overseas sectors. In the case of the Spanish market, Antequera will be easily commutable to both Málaga and Córdoba while at the same time, businesses are moving into the area bringing with them the need to relocate staff. For the overseas buyer, easy access to the coast, the great inland cities of Seville, Granada and Córdoba and skiing are a big plus, while the growth of the area is bringing more amenities, e.g. golf, to the doorstep. Next, from the hub in Antequera, the AVE will extend to Ronda and from there, on to Algeciras, Spain’s largest port and the second in Europe only to Rotterdam. Currently the journey time Antequera – Algericas is in excess of 5 hours and will be reduced by more than half. Work is also underway on the Antequera –Granada section which will mean a journey time of only about 25 minutes.

Gaucin

Even with more realistic asking prices in 2009 the bargain days are over in this area, although very occasionally I will stumble across a good ruin under 100.000 €. For a large village house to renovate you will need from 150,000 € and allow at least 75.000 € for a quality refurbishment. Farmhouses to renovate start at 200,000 €, and recent refurbishment estimates for clients are coming in at 125.000 €+. To install a swimming pool, budget 20,000 € for 8m x 4m and 25,000 € for 10m x 6m. Property buyers of inland property should be aware that Spanish banks are much more cautious about lending when it comes to rural property and valuations generally come in very low. In the prevailing credit famine you can assume it will be a real struggle to finance a rural purchase.

Very high quality country houses can be found in the Coín, Monda and Alhaurín el Grande areas. However, a house that might cost 1.5 million € on the coast would be priced around 50% lower in this area, with no compromise on quality. For buyers who cannot find what they want within budget on the coast this area would be my recommendation as the best alternative.

Western Andalucia

Infrastructure improvements have come later to this part of Andalucía but across the region the benefits are now really kicking in. The inland motorway to Jerez has improved access to pretty towns such as Medina Sidonia and Arcos de la Frontera and the airports at Jerez, Seville and Gibraltar are alternatives to Málaga. Within five years the high speed AVE rail network should be in western Andalucía with the line from Ronda to Algeciras. Well-located property, with documentation in order, remains in short supply and prices are holding up very well; maybe sellers are a bit more negotiable but don’t go here expecting major discounting, particularly if you want something with that amazing view across the Straits to the African coast.

The countryside is much greener than the rest of Andalucía and is an important centre of bull and horse breeding, plus the vineyards around Jerez. This part of Andalucía is where some of the grandest families in Spain built their country estates and in general, country properties in this region have much more land than in other parts. Therefore they do not come cheap and expect to find large houses to renovate with several hectares of land. The small farmhouse with 1,000m2 really does not exist in western Andalucía. In my opinion a buyer needs a budget of at least 500.000 € for a renovated property or good villa and upwards of 200.000 € plus renovation costs of 150.000 € if it is unmodernised. However, this is already a relatively expensive area much favoured by top-end Spaniards and buyers will be disappointed if they go looking for budget property – it is not there.

Eastern Andalucía

In general, this is the poorest part of rural Andalucía although there are pockets of growth, for example in the Granada area, but many isolated mountain villages have yet to see the benefits of major infrastructure improvements. It is an area of high unemployment and many small communities are in decline as people, particularly the young, move to the coast or the cities for work. Consequently, property prices are much lower relative to the rest of Andalucía. However, it is now much easier to access some of the more remote parts of Granada and Jaén by using Granada airport which now has routes to Girona, Stansted, Liverpool, East Midlands, Bergamo, Bologna and Frankfurt (Hahn). In addition, work is already underway on the high-speed rail link from Antequera.

This the most mountainous region in Andalucía, dominated by the Sierra Nevada, the highest peaks of which are over 3,000 metres above sea-level. Unsurprisingly, this has an impact on winter weather and throughout the Sierra, the Lecrin valley and the Alpujarras, winters are long and cold. Unless a buyer is a skier and actually looking for snowy conditions I always recommend that property viewing in this area should be done during the winter months. Far too many people have bought in this area after only visiting in the summer months and the first winter can come as a real shock. The altitude of the ski resort, base level 2,100 metres and top station at 3,300 metres, means that it is often one of the first, and sometimes the first, resort to open in Europe; in 2008 it opened on November 15th and there is usually good skiing well into April.

Cities

Across Spain, cities and provincial towns are being improved, helped by E.U and regional government funding. For property buyers seeking a city destination with some history, great street life, elegant architecture and a quality of life second to none then Andalucía can offer some of Europe’s best, e.g. Seville, Granada & Córdoba, all of which have excellent rental potential in both the cultural tourist sector and the long term Spanish market.

The smaller city of Jerez is also growing. With its own airport and excellent road connections in all directions it is easy to get to and superb beaches are only 15 minutes away at Sanlúcar de Barrameda. It has the feel of the Seville of 25 years ago and prices right in the historic centre are about 20% lower than Seville at present.

Córdoba and the surrounding area has remained off the radar for most overseas property buyers because it is relatively difficult to get to; although there is a small airport there are no international commercial flights in or out and even with the motorway up from Málaga finished, it is still a 200km drive. Now, with the high speed AVE rail service to Malaga operational, a property owner can fly into Málaga and let the train take the strain – journey time will be an hour to Córdoba, about half what it takes to drive. So get out at Córdoba and hire a car there. Prices are about 30% lower than in Seville.

With more than 7,000 kilometres, Spain currently has more kilometres of high-speed rail lines planned, under construction or already operational that any other country in the world and Andalucía has about 30% of that total. As Spain’s largest autonomous region, covering about 18% of the Spanish mainland, getting around will become much easier. Improved access usually means higher property prices and by 2013, all of Andalucía’s provincial capitals should be linked by high-speed trains.

Conclusions

Prices were very slow to fall in the last prolonged downturn in Spain which lasted from 1990 to 1994; there was a long period of denial which drifted into four years of reductions at the end of which prices were on average 40% down from the peak. This time around it all seems speeded up; we have gone from denial to discounts of up to 40% in a matter of months while some sellers seem to have missed out the denial phase altogether! One explanation is that prior to the earlier downturn most buyers had bought with cash; mortgages for overseas non-resident buyers were very restrictive, 60% LTV over ten years at best. However, during the boom years since 2000, what had been a market of mostly cash purchases became a market of mostly mortgage-funded purchases; previous restrictions on non-residents loosened to the extent that loans of 80%+ became the norm with 100%+ not unknown and far too many buyers were relying on rental income to support some, if not all, of the repayments. So in this cycle, most owners don’t have the luxury of playing a waiting game, holding the property is going to be expensive and I think this is one reason for amazing reductions appearing so quickly. Another reason, I am sure, is the fact that prior to this latest frenetic period it was unheard of for people to make multiple purchases but thousands have done it in the recent boom years, always with the intention of selling during construction, and having failed to do so, now find themselves servicing more than one mortgage they hadn’t bargained for. Complicating matters still further, promises of rental income levels that would more than cover mortgage repayments, in the ‘very unlikely’ scenario that flipping was unsuccessful, were often made by over-excited estate agents and developers to encourage people into multiple purchases. In the event, these ‘promises’ have turned out to be way off the mark, so renting is not an option. So, there are now a significant number of sellers who just cannot sit it out and this is producing some quite extraordinary offers. And let’s be clear, I am not talking about identikit apartments in a development of 2,000 units in some out of the way place with no infrastructure. I mean top-quality property in prime locations in one of the most sought-after destinations in Europe and in my opinion, the best deals will be found in the resale market, not with developers.

Here are a few examples of what I mean by discounts. Currently, I can find well-located apartments near Puerto Banús and Marbella for under 250,000 € and would expect to be able to negotiate further. At the other end of the market, I have seen 1 million euros come off the asking price of a brand new house in La Zagaleta and a 2.2 million € reduction on a 7 bedroom house, with heated pool and home cinema, near the beach at Los Monteros. Then, from someone who did buy more than one unit off-plan, the original asking price on two 2 bedroom apartments, beachside near San Pedro, 2kms from Puerto Banús, was €360,000 each; he would now like to sell them together for a ‘job lot’ €500,000, i.e. 250,000 € each. An identical apartment sold at the beginning of 2008 for €400,000.

No doubt there are still some interesting times ahead but after 25 years in the Andalucían market, involving several cycles of highs and lows, I have never seen anything quite like this – so many sellers needing to sell so urgently and a buyer with cash, or finance arranged, is now seeing prices that I almost can’t believe. But as with the January sales the quality items sell first and the stuff that isn’t really going to look like a bargain at any price is all that is hanging around at the end, and it’s no different in property markets; in the quality sector deals are already being done at levels that will show capital growth as soon as the market starts to move off the bottom while at the other end, the over-built, poorly located developments may never look like a bargain at any price and this sector will take years to shake down. Of course, there will be some owners who don’t ‘have’ to sell or say they don’t although I would question why anyone would put their property on the market in current conditions unless there was a real need to sell. The trick for buyers right now is to hunt down serious and motivated sellers and ignore all the others. From the buyer’s point of view conditions in Andalucía right now are the best they have been for 15 years so take advantage.

For more information on this report and the property market in Andalucia, or to find property in Andalucía please contact:

Barbara Wood
E: andalucia@thepropertyfinders.com
T: 0800 622 6745
www.thepropertyfinders.com