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January 2009

27.1.2009 - Soller Property - Marine Reserve

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Soller Yacht Club have applied to the central government help to establish a marine reserve in one of Mallorca's most emblematic areas.

Soller town and Port sit within the Tramuntana natural park and area of outstanding beauty and the yacht club members see the idea of a marine reserve as a logical extension of the Park into the coastal area.

The promoters of the initiative believe that the marine reserve will not only provide very significant environmental benefits but also for the Soller community as a whole, assisting the expansion of nautical and environmental tourism in the area, including the ever growing diving tourism market. The area’s rich marine fauna, flora and sea life could be turned into an important attraction to international divers.

Diving is seen as growth area in the tourism sector of the economy due to its growing popularity world wide and environmentally friendly characteristics.

Soller, already one of Mallorca's most exclusive and beautiful attractions for visitors and top end property buyers, believes it can make its mark on the global diving resort map.

Soller is not the only area trying to expand their diving tourism market with Calvia looking to sink a decommissioned Spanish navy frigate to act as an artificial reef and also a diving feature,although at present it appears that central government will block this particular plan.

For further information on the Soller property market and opportunities to purchase or develop property in the area please contact David Novi BA MPhil MRICS on info@novipropertymallorca.com

15.1.2009 - Mallorca Property Prices Continue Downward Trend

 

The decline in value of Mallorca property steepened again in December 2008 reaching a year on year figure of -9% compared with -8.4% in November, -5.4 in October and -4.4% in September, according to the latest monthly report from Tinsa, one of Spain's leading property valuers.

 

This is the 7th successive month that prices have declined in the Balearics according to Tinsa. Interestingly the same report identifies much heavier "losses" on the mainland Mediterranean coast, a fall of 14.3% in December, a decline that has been on going since February ie 11 months.

 

Novi Property Mallorca Comment:

 

What can we read into these figures and how do they compare with what appears to be happening on the ground?

Firstly it is important to note that the traditional valuation approach in Spain is to use, as evidence, the values of comparable properties that are being offered "on the market" not actual sales transactions. While this is a simple product of the lack of reliable information on real sale prices* it is a real issue that needs to be considered by Buyers and their representatives (*Note. most are distorted by the tax evasion practice of registered sale prices excluding a cash element paid "under the table" by purchasers to the vendor, something that has the real problem of disguising what is really happening in the market).

 

Owners and estate agents rarely act in line with the real market, holding out for higher prices long after a market has turned (especially when it turns down). The likelihood is that if "asking prices" are falling, real values fell sometime before. In the case of Mallorca we believe the market turned, at the very latest, in late summer of 2007 (some top end properties may have been a little more resilient) and any subsequent increases in asking prices were the consequence of owners and estate agents failing to come to grips with the simple fact that Spanish and Mallorca property prices can actually fall! Until then if a property did not sell owners and Agents simply increased it's price every few months, or at least at the end of the year, to reflect "the increase in values of property" during the preceding period - ie they were indexed linked like a State employees salary!!!

 

Extending this argument, it is thus likely that owners and estate agents are still not reflecting the realities of the market, ie have not fully adjusted down their price expectations, and thus "real nominal price falls" are much higher. "If you would want me to pull a figure out of the air", says Novi Property Mallorca's David Novi "I would double it and say values, generally in the Mallorca market, have already fallen between 15% and 20%, and since the market turned in mid - late 2007"

 

In relation to the levels of price falls in the different areas of Spain, and in particular comparing the decline of 14% on the Spanish Mainland coast with the 9% in the Balearic Islands (ie is it reasonable to concur that values are falling more on the Mainland than in Mallorca), it is likely that here the statistics don't lie and rather reflect the market fundamentals of the two regions. The mainland market was, as we have highlighted on many occasions, dominated by a much greater levels of speculative low - mid level price residential development driven by an equally speculative demand from investors. In Mallorca, while the construction boom was not exactly "controlled", it was on a much more reduced scale and the demand side was driven by real underlying fundamentals - population and household number growth and second home purchasers motivated by lifestyle reasons rather than financial.

 

These fundamentals are likely to help the Mallorca market withstand the current crisis better than other areas with "top to bottom" falls of around 30%, in the market generally, rather than an anticipated 40 - 50% in some of the worst affected areas of the mainland.

 

For buyers the key question is when to come into the market. David Novi believes 2009 could be a good time even if prices generally are still weakening.

 

"Clients often ask for my advice on where they can find the best deals, hoping we will produce a list of properties with bargain level prices, many of which are distressed sales from repossessions etc. In reality while there are one or two examples of such properties, the real opportunities are hidden behind the still artificially high asking prices of many (but not all) properties on the market. What we see is that the real bargains are only discovered once offers are made and detailed negotiations undertaken. Suddenly a property that looked at best "reasonably priced" has become good value, as we have been able to negotiate a major price reduction for the purchaser. The bottom line is don't expect to see asking prices reflect underlying value, at least from a general point of view but there are always exceptions!

 

Perhaps we are biased (!!), but as Chartered Surveyors and valuers, and above all agents for Buyers rather than Estate Agents acting as brokers between owners and purchasers, we believe we are able to offer clients not only the market and professional expertise, but also the independence and impartiality to help buyers identify and buy at the best possible price.

 

"In a rising market you could always make a mistake and over pay without getting your fingers burnt" concludes David, "the market keeps rising and any error is soon eroded and the buyer is left sitting on a profit (all be it a paper one!). When a market is falling, and even more relevantly in one where the buying costs are quite high (ie 10%), an overpayment of say 10 - 15% will leave the buyer with a "deficit of 20 - 25% (ie after adding in the costs of purchase) that will need to be recovered via future market growth, if a subsequent sale isn't going to result in a loss. Since future growth levels, at least in the medium term, are likely to be much more modest - say 3-5% per annum and even those won't probably start until 2012, it is easy to see how long someone would have to wait before the "error" is corrected. While pure investment motivations are rarely the driving force behind our clients purchases, they do want to limit the downside risks, something we believe we can assist them with through our market and valuation expertise"

Resources

Tinsa December Market Report

Mallorca Chartered Surveyors

Spanish Property Insight

Property Finders in Mallorca

Mallorca Property News

Diario de Mallorca

Expansion 

Mortgage Broker in Mallorca

14.1.2009 - Deia Property in Foreign Hands!

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Deia property in Mallorca appears to be falling ever more into the hands of non Spanish residents, according to the latest statistics from National Institute of Statistics.

Over 41% of residents registered in the beautiful mountain village of Deia, one of Mallorca's most exclusive addresses, are non Spanish residents, while the figure for Mallorca and the Balearic Islands as a whole stands at a still lofty 21%, the highest by far in Spain.

Deia, along with Valldemossa, Fornalutx and increasingly Soller are seen by overseas Mallorca property buyers as the perfect antidote to hectic city life, offering perhaps the most stunning scenery in Mallorca, tranquil countryside and villages and a highly sophisticated and exclusive range of hotels, restaurants and quaint retail facilities.

While no one can deny the quite awful state of the general Mallorca property market and the economic backdrop for property buyers, Deia is a perfect example of why Mallorca has always been dominated by lifestyle purchasers, rather than the property investors that swamped the Spanish Mediterranean coastline and why, when some initial confidence returns, Mallorca and highly sought after destinations such as Deia, will be well placed to find support and thus a bottom to this market before others.

Also of interest is the fact that despite the downturn Mallorca saw it's non resident population grow by over 17% helping the overall population for the Balearics to grow by 42,000. While only time will tell whether this trend will continue in 2009, as the crisis deepens, it is evidence of another key economic variable that helps support the view that the Mallorca property market has some structural characteristics that offer defensive qualities and thus should ensure the very worst effects of the downturn are felt elsewhere in Spain rather than on the Island. Location, location, location!  

For details of buying opportunities in Deia, Soller and Valledomossa please see the dedicated West Mallorca web page.

14.1.2009 - Mallorca Property - Exchange Rates

 

Sterling denominated purchasers of Mallorca property had at least some post Christmas cheer as the pound climbed by 7% against the Euro as the Bank of England slowed the pace of interest rate cuts to 0.5% and markets priced in a sizable cut in Euro Zone rates this week.

Last week’s gains followed a record near 23 percent fall against the euro last year, which brought Sterling close to parity with the European currency.

While it is too early to say whether this trend will be continued in the short term, many analysts feel further strengthening of Sterling will follow during 2009 - early 2010 which could see the Pound back up to the 1.30 level against the Euro by mid 2010.

For further information regarding the transfer of Sterling, the exchange rate situation and the use of mortgage finance to alleviate the current weakness in the Pound when buying a property in Mallorca, please contact David Novi BA MPhil MRICS at info@novipropertymallorca.com or see our dedicated Mortgage Finance and General Finance web pages

14.1.2009 - Mallorca Property Market & The Falling Euribor

 

Both Mallorca property owners and potential buyers will have both sought at least some comfort in the recent dramatic falls in the Euribor (interest rate most commonly used to calculate mortgage payments in Spain) but what impact will these falls have on both these groups and will they stimulate a recovery in the Mallorca property market?

Firstly, those most likely to gain are existing property owners. Most Mallorca mortgages are on annual reviews such that any mortgage reviewed from December 2008 onwards should see repayments reduce significantly as a direct result of the falling Euribor.

The situation for new buyers of Mallorca property will be less clear unless they take over an existing loan, something which is quite common in Spain. The main reason why new buyers will not benefit to the same extent is because lenders have raised the risk premiums they charge in anticipation of higher default rates, and thus overall interest charges, while less than they would have been 12 months ago, will not fall as dramatically as the fall in the Euribor.

Where a buyer "subrogates", ie takes over the loan from the current owner or builder, they could well get a better deal than taking a new loan as the risk premium is likely to be lower than what a bank will offer in the current climate. In addition there are much lower costs involved in loan "subrogation", compared with new loans, another benefit of looking carefully at this option.

In relation to what impact these changes will have on the overall state of the Mallorca property market, and downward trend, don't expect miracles. In the short term at least the wider economic backdrop is far more significant and will remain the driving force behind market movements. On the positive side falling interest payments could spare some property owners from the increasing risks of default and reduce the number of new "distressed" sales. This in turn will provide at least some underlying support to the market.   

Please see our dedicated Mallorca Mortgage web site http://www.mortgagesinmallorca.com and Mortgage Information page on our main Novi Property site. For further information please contact David Novi BA MPhil MRICS on info@novipropertymallorca.com