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Mallorca Property Market September 2017 – It’s a question of Supply & Demand!

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The Mallorca property market continues powering ahead with both transaction levels and prices rising significantly.

According to the National Institute of Statistics (INE) the first 7 months of the year saw total property sales transactions top the 9,600 mark, 19.8% more than during the same period last year. Interestingly this is almost entirely due to the sale of second hand rather than new properties, the former rising by 27% while the latter (new builds) actually falling by just over 5%.

But what is behind these figures?  The long and short is that there is a real supply problem right across the board. The new build sector is simply unable to meet the levels of demand due to the lack of land designated for new housing and, where it is available, it’s price. New development is almost exclusively concentrated in the mid to high level of the market and even then it just can’t meet the growing levels of demand. The consequence is that from the lower ends of the market (under 250,000€) where many first time buyers are found, or locals in the many relatively poorly paid jobs of the tourism sector, right the way through to the luxury villa end of the market dominated by foreign investors, buyers are having to resort to the second hand market to find stock.

Consequence? Prices are following suit and rising!

According to Idealista one of Spain’s largest property portal, in August alone prices of Mallorca, and the wider Balearic Islands, rose by 1.7% (traditionally a quieter month), while in July the increase was 2.7% and June 2.8%. In the 2nd quarter between March and June prices rose on average buy 7.5%, over 16% more than one year earlier. Perhaps unsurprisingly it was Palma that was leading the way in Mallorca with year on year price increases of 23%.

This begs the question, are these increases sustainable? The quick answer is “no”, if we want to know whether we will continue to get year on year increases of over 16% ,but if we are concerned about an overly inflated market that could go “pop”, then again I think the answer is no! Let’s look at the fundamentals:

  • The supply side is well and truly under control with planning regulations unlikely to change sufficiently to reverse this balance. What would be positive to see is politicians examining issues of density to see where these can be increased to both increase supply and allow more affordable homes, but without impacting on the existing character of the urban landscape.
  • Demand – it is difficult to see this materially changing in the short / medium term. The demand base is wide (local and international) all of whom will benefit as economic growth filters down to rising wages. I know one can cite the UK where inflation is running ahead of wage growth, but across the board generally, both in Spain and other areas from where buyers come from, it is likely that wages will start to rise and should at least keep pace with inflation
  • Is Sterling going to bounce back? Who knows but all this increase in transaction numbers has come at a time of a plummeting value of Sterling, home to the second biggest foreign market for Mallorca property! Should the correction in Sterling be over, and last weeks rise in the GBP be maintained, then that will only put an additional floor under that important segment of the market.
  • Holiday rentals, and whether one can or can not rent your holiday home in Mallorca, is another interesting variable. May sound strange to say this but I actually think that this uncertainty is very timely! The market just might have been moving into “steamy over drive” and if this causes a bit of a “pause” hopefully we can see growth sustained (ie slower but steady increases) without the “froth”!!
  • At certain levels of the market, particularly the lower ones effecting locals, there is an affordability problem. Something must give – supply needs to grow, and this will probably only realistically happen with changes to planning regulations to allow more density so cheaper properties can be offered, or demand needs to fall to stop the prices rising further. An increase on the supply side would in my mind be very positive as it would I believe act as a modest “brake” to the market. On the demand side I fear and sympathise for those effected but I do not believe this is a problem that could fundamentally destabilize the market, something one might imagine in other locations where demand predominantly local.
  • Banks are lending but without returning to the mal practices prior to the crash. Again this should help keep the market on track without contributing to any price bubble.

Conclusion? Expect the market to keep growing, all be it more steadily at least for the following 18-24 months (circa 10% per annum). Thereafter I think we might see a plateauing of prices (in real terms) but it is very hard to see any price correction in the foreseeable future.

Looking for a property in Mallorca? Want to be helped by an experienced Chartered Surveyors and Mallorca property specialist? Contact me, David Novi, for a no obligation chat.

See also our Novi Property Mallorca client testimonials.

 

 

 

 


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Added on Wednesday, September 13, 2017

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