I spent Thursday in Mallorca talking to industry players after giving a presentation on the state of international demand for property in Spain and the Balearics, and the impact of Brexit. I was sharing a platform with Pedro Soria, Product and Diversification Director at the appraisal company Tinsa, who talked about the stock of land, housing, and prices in the Balearics.
I had been invited to speak at a morning conference for professionals in the international property business – mainly lawyers, estate agents, and developers – organise by HolaBank and Tinsa.
Part of CaixaBank – one of Spain’s largest financial institutions – HolaBank specialises in providing financial products and services to foreigners in Spain, with a branch network of offices on all the main coasts and islands (and advertise at this website). Tinsa is Spain’s leading appraisal company, and offers due diligence reports in English for both buyers and sellers.
Before the conference began in the CaixaForum building in the picturesque centre of Palma de Mallorca I did a quick interview with Spanish TV news in the Balearics, which you can watch here (in Spanish). The section on the housing market starts at 2.45 minutes, and my interview at 3.58 minutes.
The conference was introduced by José Manuel Arteaga – HolaBank coordinator in the Balearics – who explained the benefits of banking products and services tailored specifically for foreign expats and second-home owners, such as the HolaBank Living Solutions account, which offers clients a number of financial and non-financial benefits to make life in Spain as comfortable as possible. Just one example he gave was a home security alarm package that suits second home owners who are absent for many months each year.
Foreign demand and Brexit in the Balearics
Then it was my turn to speak to the full-house of 70 odd professionals who had come to listen to Pedro Soria and I talk about the supply and demand for property in the region. I gave a presentation on the state of international demand for property in Spain and the Balearics, and presented some data to quantify the impact of Brexit on British demand. Pedro presented lots of data on the housing stock and prices.
I won’t go into the detail of my 40 minute presentation involving twenty slides with data illustrating international demand for property in Spain, but I will show you one graph with the breakdown by nationality of international demand for homes in the Balearics.
Though the figures are from 2015 (the latest I have from the Land Registrar’s Association) the story will not have changed much in 2016. Germany, Italy, Sweden, Switzerland, and others will have increased slightly, and the UK declined slightly, but the overall picture will have been broadly similar.
Germans are the biggest group of of foreign buyers in the Balearics, mainly in Mallorca, followed by the British, who are spread more evenly between Mallorca, Menorca, and Ibiza. The fact that British buyers are not as dominant in the Balearics as they are in Malaga (Costa del Sol) and Alicante (Costa Blanca) helps explain why Brexit is having less of an impact on demand in the region.
Furthermore, British buyers in the Balearics tend to have bigger budgets on average than those who search in other parts of Spain, and better access to mortgage financing. This means they have more financial options at their disposal, and the decline in the pound after Brexit has not necessarily scuppered their planes to buy a home in the Balearics, as it has done for many Britons with smaller budgets who might have been planning to buy in other parts of Spain. That’s my theory at least.
But this theory was born out in my conversations with industry players after the conference. Some reported a decline in British demand, but there were no dramatic reports to match other regions, and none were particularly bothered as the problem in the Balearics is the shortage of property for sale, not a lack of demand. For every British buyer that disappears, two others from other nationalities are there to take their place. This is all anecdotal, but there’s little sign of a demand crisis in the Balearics, least not in Mallorca and Ibiza. Menorca might be feeling the pinch a bit more, as British buyers have greater weight there, but I didn’t have a chance to explore the situation in Menorca in any depth.
Housing supply shortages in the Balearics
Tinsa has some of the best housing market data in Spain, and Pedro Soria gave us a fascinating insight into the looming shortage of land and housing in the Balearics in general, and in Ibiza in particular.
The Balearic islands have an obvious problem with land supply – there just isn’t enough of it, and you can’t reclaim land from the sea, at least not in this part of the world. Then there are strict zoning laws which limit the supply of land that can be built on (which I am all in favour of), and the result is an acute shortage of building land in the Balearics, given the current level of demand for housing.
Stocks of empty new homes are relatively low in the Balearics (enough to cover less than one year’s demand in Ibiza, for example), and the inventory of building land to supply the market with new homes is also low, though it varies from island to island. Given current demand (local and international) the inventory in Menorca is five years in Ciutadella, with an island average of 15 years; in Mallorca the inventory in Palma is two years, and five years for most of the rest of the island; and in Ibiza there is almost no building land at all, with just one year’s supply in the capital, and two years in Santa Eulalia. Building land in Formentera is as rare as hens’ teeth. So there may be a huge stock of building land in Spain as a whole, but hardly any of it is in the Balearics.
What does this all mean for house prices and rental costs in the Balearics? If demand continues to grow, as I expect it will given the improving economy, low interest rates, increasing mortgage lending, booming tourist trade, and attractiveness of the region to foreign buyers, and if the supply of building land dwindles, which it will, then where can house prices and rental prices go but up?
Affordable housing crisis
Affordable housing is a growing problem in the Balearics, and especially in Ibiza, where the latest news is that medics and public health workers will have to stay in the pediatrics department of an old hospital called Can Misses this summer, as alternative accommodation is too expensive. It’s all very well attracting the international jet-set (the number of private jets arriving is at record highs), but low-paid workers also need somewhere affordable to live. The challenge of affordable housing in a region like the Balearics is particularly tricky to solve because of land supply shortages inherent to islands. Intelligent solutions are required, particularly from public policy, but it’s a question for a separate article.
After the conference I met with Hans Lenz and Dominique Carroll from Engel & Völkers. Hans is the Managing Director of E&V South West Mallorca – one of the most successful offices in the E&V global network – which gives you an idea of how much international demand there is for Mallorca, and this area in particular. It was a lovely, warm, spring day so we went for lunch by the waterfront in Puerto Andratx, and I learnt much from Hans about the market in Mallorca. He knows what he is talking about.
After lunch we went to see a new development in the area, the first phase of which I visited 15 years ago. How things have changed. The build quality, design, and spec of new developments today is so much better than it ever was in the boom. You get a lot more bang for your buck these days.