This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Mark Stücklin
The Balearic government says it needs an exception to EU rules allowing it to exclude foreigners from the market, whom it blames for driving up housing costs. So how exceptional is the housing market in the Balearics?
The Balearic government, or Govern in local parlance, says the region is suffering a housing crisis caused by higher rental and purchase prices locals can’t afford, in particular ‘vulnerable groups’ denied “dignified housing” and a minimum quality of life. The Govern argues that foreign buyers are the main cause of this crisis, that the situation in the Balearics is unique, and justifies a ‘Balearic exception’ to EU rules allowing them to exclude foreign buyers from the local housing market.
“The purchase of second-homes by wealthy Europeans drags up the price of all other properties, leading us to a housing crisis without precedent,” argues Antonia Jover, Podemos candidate for President of the Balearics, and currently one of the parties in the governing coalition. She also argues that only Podemos’s “bold proposals” will stop vulture funds and major property-owners from buying up properties to speculate with.
Podemos claim that there is enough housing for everyone, and no need to build more homes in the region, so it’s just a question of price. “It’s not necessary to build more like the industry is demanding,” says Jesús Jurado, spokesman for Podemos in Palma, who also claims there are 16,000 empty homes in Palma. The problem, according to Podemos, is “vulture funds and rich people” hoarding and speculating with property.
Francina Armengol, the Balearic president, has told the press that “many European and other citizens can afford property at prices that are impossible for the citizens of these islands.” In other words, wealthy foreigners are pricing out locals, so get rid of them and problem solved!
Unfortunately for the Govern, they don’t have the power to exclude outsiders from the housing market because it would contravene the Spanish constitution and EU laws. Both Madrid and Brussels have dismissed the idea of a “Balearic exception” so the main plank of the Govern’s housing policy is a fantasy.
Given that the Govern argues the region deserves an exception because of its ‘unique’ housing crisis I thought I’d look at the data and see what evidence there is of that. How expensive is housing, how hot is the market, and how important are foreign buyers compared to other parts of Spain that are not demanding an exception to EU rules?
How exceptional is the Balearic housing market?
Balearic house prices
First of all, let’s look at house prices in the Balearics. The first chart below shows average Balearic house prices in €/sqm and the year-on-year change (blue area line) since prices started recovering in 2013. Prices have increased significantly, and are the highest in Spain at 2,827€/sqm, just ahead of Madrid on 2,785€/sqm. The difference is that Madrid is significantly richer than the Balearic, with a GDP/capita of 34,821€ in 2021 compared to 24,866€ in the Balearics. So yes, in this respect the Balearics are unique – house prices are the highest in Spain, both in absolute terms, and especially compared to GDP per capita.
On the other hand the Balearics are also exceptional for how hard house prices are falling, with -6% in December 2022 and -21% in January 2023, as you see in the next two charts. Prices are high, but declining significantly and faster than anywhere else, even with foreign buyers in the market.
Rental prices in the Balearics
What about rental prices in the Balearics, which are the cost of housing for people who can’t afford to buy, or don’t want to? Rental prices in Palma de Mallorca are higher than Valencia but lower than Barcelona and Madrid. And if you look at an index of rental asking prices with a base year of 2012, you see that rental asking prices have increased significantly, but not exceptionally; rents have increased the same in Barcelona, and more in Valencia, Marbella and Malaga.
Home sales in the Balearics
Home sales in the Balearics have also been falling faster than other Spanish regions popular with foreign buyers, as illustrated by the next two charts. The Balearic housing market is exceptional in Spain today because it is contracting so fast.
Foreign demand is also falling hard, down 23% in Q4 2022, and lower than it was in the same period of 2016 and 2017, as illustrated by the next chart.
Foreign market share (FMS) in the Balearics
Finally let’s look at the market share of foreign buyers in the Balearics compared to other regions. As you can see from the last chart, the share of foreign buyers is high at 40%, but far from exceptional compared to other Spanish regions popular with foreign investors. Furthermore, the FMS has been declining since 2021, meaning that foreign buyers have a declining relevance in the Balearic housing market.
Conclusion
Housing is expensive in the Balearics, and that is a problem for the Govern to address with a realistic housing policy. However, housing is also expensive (and unaffordable for ‘vulnerable groups’), in Barcelona, Madrid, and many other places, and the data doesn’t really support the idea of a unique problem in the Balearics. To win an exception from EU law allowing the Balearics to exclude outsiders the Govern first needs to convince Madrid to change the Spanish constitution (never going to happen) and then convince the European Court of Justice that excluding foreign buyers is the right thing to do. With this data in hand, the Govern doesn’t have a strong case.
What is exceptional about the Balearics is its xenophobic and unrealistic housing policy.
S R says:
Foreign / non resident purchase of housing is targeted at the high to very high end of the market , say 3 – 20 Mio. Whilst the housing problem is real on the island , it concerns real estate with value in the 100 – 500 k range, in different locations (with limited overlap in specific areas eg Portixol). A more efficient, albeit not so nice, option would be for the Govern to impose a supplementary 5 to 10% tax on the sale of properties over 3M, and use that money to build social housing.
Mark Stücklin says:
That would be more realistic. They already have the highest ITP in Spain with a marginal rate of 11.5% on properties over €1m. As someone has pointed out to me today, the Balearics had a population growth of 44% in the last 20 years, largely low-skilled, taking the GDP per capita from number two to number 12 in Spain, with an urban planning policy that did not allow the building of more affordable housing. The Govern’s response is to go after the high-end, like that will solve the problem.
Paul says:
With 16,000 units of empty housing in Palma, it’s safe to say the majority of the issue isn’t properties €3M and up. There’s plenty of units priced 100-500K, maybe even up to several hundred thousand, that are being purchased by mainlanders (of a variety of nationalities!) who simply use them as weekend getaways or holiday rentals, which doesn’t help the locals.
They should just bump up the taxes on anything over a few hundred thousand and ramp up the zoning and building codes to support more social housing.
As Mark points out, their local incomes have fallen, mostly due to the rise in the tourism sector and lower-paying service jobs. Sooner or later that will likely change as businesses already have issues hiring enough staff; they’ll be forced to raise wages.
Right now is also a unique time because the pandemic absolutely slaughtered their business for around a year, and the aftereffects are still being felt. The government (regardless of party!) would have a lot of pressure to “do something”, or at least look like they’re trying to do something. Choosing a solution they know won’t be allowed gives them a convenient scapegoat. Damn those Brussels bureaucrats (shakes fist)! They’re worse than OUR bureaucrats!
Mark Stücklin says:
I don’t doubt there are segments where second-home buyers and local main-home buyers compete and that causes problems, but I wouldn’t take what the Podemos people say at face value. How many “empty” homes are there in Palma? I can’t find any serious info or study, just press reports and political statements. It ranges from 16k to 17k depending upon the Podemos spokesperson. The PP say it’s 30k because lots of landlords don’t want to rent out due to the risks of non-payment and squatters. According to the latest study by the Housing Department (Conselleria de Vivienda) of the Govern reported in the press there are just 685 empty flats in all Mallorca belonging to “major owners” who have 10 or more properties. On the other hand, Podemos makes out that most empty properties belong to “major owners” so none of that is consistent. Basically you can’t believe any of the claims these people make. It was the Socialist Spanish President Pedro Sanchez who said of the Podemos leadership that “they lie more than they speak.”
Alfredo Bloy-Dawson says:
Solid piece Mark, contrats. So we think it will no go ahead and is just pre election posturing? Is that the sum of it in your opinion? Ever since Brexit, I never assume something stupid won’t get voted in!
Mark Stücklin says:
Thanks Alfredo. Yes, that’s my opinion. I really can’t see the Balearics ever getting Madrid and Brussels to let them exclude “non-resident” buyers. It would also be catastrophic for the local economy and Govern’s tax revenues.
Claudia Zezukiewiets says:
Interesting! I am curious where the data from the declines come from (you mention notaries, but which source? – just curious)
You can’t exclude non-residents from the market, but instead of protesting for lower property prices and rentals, one could fight for higher income… and, what about speeding up the introduction of more creative ways of living (co-living)… Or, start initiatives to have “rich” people invest in a small apartment and rent at a max rate (one for me, one for you)… Just naming a few, but I am sure this could be solved way faster by thinking a little bit more out of the box.
It all takes so long. I saw an article about a robot in a restaurant in Ibiza the other day, it passed my news feed like 5 times…. Hello, robots? Old news… AI is around the corner… the world is going much faster than the laidback attitude of the islands… And, as a result, the gap between the island and the mainland is increasing exponentially.
Mark Stücklin says:
The source is always specified on the chart or in the article. Hope that helps.