Mallorca property market overview – looking back at 2008
First of all, a look back at Mallorca’s property market in 2008.
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 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 Euro-commuters. 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 car parks 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 car park 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.
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 sea views. An apartment with frontline sea views 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 sea views 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.
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 decommissioned 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.
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.
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.
