December 2008

24.12.2008 - Pollensa Property – What Now For the Market?

Property in Pollensa, Puerto Pollensa and the close by bay of Cala San Vicente, has long been popular amongst foreign buyers and in particular the British. Offering a mixture of stunning mountain and costal scenery, particularly associated with the Tramontana Mountains behind Pollensa, and the Voramar “Pine Walk” in Puerto Pollensa, and a quiet sophisticated and family friendly environment, for years the Pollensa property market knew only one thing, growth! With that growth came extensive new development, particularly in the Port’s Gotmar, Llenaire and Boquer areas with their mid to high range apartment complexes and in the countryside around the old town where rural fincas were purchased and renovated or high quality new build Pollensa country houses constructed. Prices increased rapidly and Pollensa became a Mallorca property market hotspot.

Now with the world and Spanish economies retreating rapidly, and the Spanish and Mallorca property markets in what appears to be freefall, what is happening to the niche Pollensa property market and what are the prospects for 2009 – 2010?

Let’s start with the positive! The countryside, mountain backdrop and sweeping sea frontage retain all the charm and quality that underpinned the boom. New development has generally been of good quality and relatively controlled, so that what the Pollensa real estate market has to offer remains very attractive, and the development “overhang” (i.e. supply of unsold new build properties) is also what one would regard as “controlled”. In effect the characteristics that made Pollensa one of Mallorca’s top “property lifestyle” areas remain unchanged or even enhanced.

Although on the surface of things these might be regarded as bland statements of little economic significance the reality is that these qualities and characteristics are exactly what makes Pollensa so attractive to foreign property buyers (and indeed more local Mallorquin and Spanish mainland purchasers). When economic stability returns (but be patient!) so will the buyers looking for the same lifestyle characteristics as before.

On the downside Pollensa is very much a British area and thus has been exposed to not only the general downturn in the economy but also the recent weakness of Sterling against the European Currency which has seen the former fall by around 30% over the last year. In effect the cost of buying a Pollensa property has gone up that same amount for Sterling denominated purchasers! While there remains considerable uncertainty in the foreign exchange markets and the prospects for Sterling and it’s relationship with the Euro, credible opinion, including that of the RBS Bank, is that we will see a slow recovery in Sterling and that by mid 2010 much of the ground will have been recovered and Sterling could stand at around 1.30 against the Euro (compared with around 1.05 today). Note: Contact us about how to use mortgage and debt finance to manage the Sterling -  Euro interface and take advantage of any future appreciation of the pound.

But even if conditions become more attractive for UK buyers, due to an appreciating pound, will the wider economic backdrop keep the buyers at bay for the foreseeable future? There is no doubt that the good times are still a long way off and we do not foresee real growth returning to the market until 2012. UK buyers will undoubtedly remain an important sector of the market and will return in more numbers around the same time, coinciding with returning confidence, job security and economic growth back at home. We also believe that while the British and German interest in the Mallorca property market will remain predominant it is likely that the trend of increasing diversification in the origins of foreign buyers, that became apparent in recent years, will continue both generally and in the area of Pollensa.

We also believe that, just as during periods of uncertainty investors look for quality in their underlying investments, it is likely that growth will return to those sub sectors of the Mallorca property market where supply is controlled and the quality of offer high. In this regard it is likely that the Pollensa market generally, and in particular the market for top quality rural fincas / country homes around Pollensa old town, and mid to top end apartments, in good locations around the Port of Pollensa, will start to move earlier than others but probably not for a year or two yet, 

But while we can argue that the medium term future looks reasonable, with a return to stability and growth, underpinned by the undeniable quality of the Pollensa environment and real estate offer, what is happening now and are there buying opportunities that warrant consideration during the downturn? Firstly and interestingly while much anecdotal evidence from the Mallorca property market generally is that the one sector that is retaining some resilience is that for top end villas and fincas, in Pollensa sales have dried up for these properties with the consequence that asking prices are falling, in some cases considerably, although not uniformerly. Market research is essential to identify those properties that are starting to offer real value, but they are starting to emerge, if one takes a long term investment view. 

That said with recovery of the market generally not expected for some 2 or perhaps 3 years will the wise investor sit on the sidelines for a little longer before taking the plunge? The answer is probably yes and no! Firstly it is important to say that “calling” the bottom of any market and being clever, or should we say lucky, enough to buy at the lowest point and just before growth returns, is almost impossible even for the savviest investor. The key is to buy when the majority of the price falls have occurred thus reducing the downside risk to the investor and taking a long term view so that even if there are further marginal falls these can be easily recouped during the initial stages of a market recovery. The other key is to look not only at prices in the market as a whole but also those of individual properties. The two are not always in step and investors can miss buying opportunities fearing further falls in the general market, when the price of a particular property has been reduced already and / or can be negotiated sharply lower today.  

In Pollensa while the asking prices of many properties are likely to still fall, as we have said some have already been adjusted downwards and in most cases “offers” are considered. In other words while the actual asking prices have in many cases only been reduced marginally, serious vendors are now prepared to talk about much more considerable reductions with a prospective buyer. This is a big change in the market and one that should open up opportunities for purchasers who wish to look now, carefully and patiently, but are serious about buying and able to demonstrate an ability to purchase (i.e. have funding in place) and thus negotiate discounts. 

While general market prices are likely to fall for some considerable time to come, if a good reduction can be negotiated now, on an individual property, it is likely that a purchaser will be able to “bring forward” some or all of these “future price falls” and thus considerably reduce the downside risks of their investment. A long term view of the purchase will of course be important but for lifestyle purchasers, or those looking at relocation, it seems that, with patience and careful market research, acquisitions can be considered now rather than postponed post 2012 when the market generally looks likely to start to grow again in Mallorca, and importantly the property can be enjoyed now!

In conclusion we believe that the Mallorca property market, and that for Pollensa, still has some way to fall and that recovery will not take place until 2012 generally, although high quality areas like Pollensa may recover marginally before. One of the keys however is to look at the prices and values of individual properties relative to the general market, thus identifying properties that have been reduced or can be reduced by negotiation now. Opportunities at this level are now emerging and, with good market knowledge and research, could allow purchasers to consider acquisitions now and thus start to enjoy all that makes Mallorca and Pollensa such an attractive place for property owners!          

18.12.2008 - Cala Rajada Hotel Collapses Killing 4

12.12.2008 - Pollensa Property & Agatha Christie!

Pollensa Town Hall and the Government of Mallorca have announced plans for Agatha Christie to be the "face of Pollensa" in all future marketing campaigns targeted towards the British visitor market.

Agatha Christie was a frequent visitor to Mallorca and particularly Pollensa and famously wrote a short story titled "Problem at Pollensa Bay" when reputedly staying at the famous Illa Dor Hotel.

The campaign will include a sculpture of the author, souvenirs and even special dishes and menus at the many harbour front restaurants

6.12.2008 - Mallorca Property - Interest / Exchange Rates

With general economic data releases and Spanish and Mallorca property market sentiment all making depressing reading we continue our monthly "better news" feature on interest rate movements and the outlook for Spanish and Mallorca mortgage holders.

Following the unprecedented rate cuts in the Euro Zone and UK last month which took base rates to 3.25% and 3% respectively further cuts came as expected this week that took rates to 2.5% and 2%, with further cuts on the horizon. While no one should hide from the simple fact that the reason for these aggressive and unprecedented cuts are due to the awful economic picture and prospects for the foreseeable future it is at least some relief for existing property owners in the UK and Spain and a helping hand for those looking to take the plunge and purchase a new property.

Importantly for purchasers of Spanish and Mallorca property, these rate cuts, along with the international governmental rescue / support packages for the financial sector have helped push the main reference rate for Spanish and Mallorca mortgages, the Euribor, down to 3.77% when only a few weeks ago it stood at over 5.5%. For a mortgage of 200.000€ over 25 years that makes a difference of 200€ per month or 2,400€ per annum.

Coupled with this good news is however the ongoing problem for UK buyers of Mallorca property, Sterling's weakness against the Euro. In a little over a year the pound has depreciated by nearly 25%, a major negative factor for a UK buyer purchasing in the Euro Zone. By example a purchaser requiring 400,000€ would have had to transfer only 260,000 GBP last year while now would have to find 340,000 GBP, 80,000 more!

Although most economists feel that Sterling will no longer depreciate further and will slowly regain ground against the European currency it may well not be until 2011 that we see at least half of the ground recovered.

So what does this all mean for Mallorca property buyers and particularly those wishing to take advantage of  the small but growing number of investment opportunities arising in this market? Further more what can Sterling denominated purchasers do to mitigate against the strength of the Euro?

• Although cash buyers are those with the greatest bargaining strength in this market, with fast reducing interest rates the time may well be right to use bank mortgage finance to assist with a purchase and this is particularly the case for UK buyers who want and need to minimise the amount of Sterling to be transferred  and converted for any acquisition. Although banks are being very strict, loans of 70% LTV / purchase price are still being granted for borrowers with secure income.
• When taking any loan ensure that partial repayments or early cancellation of the mortgage is possible without penalties in order that the loan can be reduced should interest rates start to rise and / or Sterling strengthen allowing you to transfer and convert funds from the UK
• For UK buyers with cash deposits in the UK a second way of acquiring without suffering with the penal Sterling / Euro exchange rate is to take out a Euro loan against the strength of the Sterling deposit. Although options vary it should be possible to get an 80 - 90% loan in Euros of the Sterling deposit. The interest on the monies deposited can be used to at least part pay the interest on the Euro loan and as soon as the exchange rate improves sufficiently the Sterling deposit can be transferred and used to repay the Euro loan ie You are in charge of deciding when you wish to do the exchange not the bank or the simple circumstances of when you are buying the property.
• Always use a specialist currency transfer and exchange broker in order to get the best rates and avoid the very high commissions charged by normal high street banks.

In summary a possible strategy for a UK buyer, with a good credit record and secure earnings, wishing to take advantage of the weak market to invest, would be to take out a Euro mortgage in Mallorca of circa 70% of the purchase price (taking advantage of the lowering interest rates) and look at a separate Euro loan, against a secure Sterling deposit, for some or all of the remaining 30% deposit. While it is unlikely that a purchase will be possible without any funds requiring transfer from the UK, a significant proportion of the purchase price can be obtained using Euro loans.

For further information on buying opportunities, the appraisal of different investment options and financing of the same, please contact David Novi BA MPhil MRICS on info@novipropertymallorca.com 
 

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