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March 2008

25.3.2008 - Clampdown on Mallorca Property Fraud

 

The Government of the Balearic Islands has tightend it's measures to capture individuals or Companies that under declare the value of properties in sale transactions.With immediate effect they have asked that Notaries (via whom all property sale and property mortgage transactions must pass) must provide a copy of all official valuations associated with new mortgages.

Where sales transactions are under declared on deeds, in order to pay less taxes or utilise previously undeclared income for part of the purchase, and a mortgage valuation suggests a higher figure should have applied, then authorities may well investigate. Up till now the authorities have relied upon random searches where very obvious anomalies arise between the value of a particular transaction and those taking place in the same area for similar properties (not always easy where they also be under declaring!)

An interesting consequence of the new measures could also be to penalise buyers who seek "over" valuations from the banks valuer in order to obtain a larger mortgage. In these situations although the sale price may be correct the authorities may insist that the transfer taxes (generally 7% of price) be levied on the higher mortgage valuation figure rather than the actual agreed sale price.

It is recommended than anyone purchasing a property consult with their agent or lawyer should they have any concerns over the new rules.   

Story provided by Mallorca Property News (www.mallorcapropertynews.com)  

View HTM file20.3.2008 - Property Finance Gets Harder & More Expensive

 

A recent article (see attached) in the FT highlighted the difficulties facing property buyers the world over - lower loan to value ratios and wider margins (higher interest rates)

While the article makes specific references to large scale institutional investors in the UK, the problem is no different to that facing the buyer of a holiday home in Mallorca, however modest. Risk management is the order of the day which means less is lent on each transaction and more is charged by the banks in terms of the interest rate they are looking for over and above the interbank lending reference rate (in the case of Spain and Mallorca, the Euribor)

For those seeking to buy, and requiring loan finance, it is essential that the likely availability of a loan, and its cost, is ascertained from the outset in order to establish a realistic budget and to avoid problems and disappointment once a property has been identified. An in principle offer, based on an individual's income and liability position, can be easily obtained at any time leaving the final loan only subject to a valuation of the chosen property once this has been identified and a price agreed. 

For further information and to discuss your mortgage requirements contact the Mallorca Mortgage Business

View PDF file4.3.2008 - Interest & Exchange Rate Forecast Feb 2008

 

Sterling's continued slide against the Euro, which has seen the effective cost for Sterling denominated purchasers of a property in Mallorca rise by 10%, seems to be nearing the end according to the latest report from the RBS Bank.

Although the futures market is factoring in up to 0.75% of further interest rate cuts in the UK, which could further weaken Sterling should the ECB not follow with similar cuts in the Euro Zone, the RBS feel that a more likely outcome is a further 0.25% cut around May, with the Banks main concern being the containment of inflationary pressures.

In Europe the ECB has the same balancing act to play between containing inflation and ensuring growth rates do not stall completely. The RBS call is that with inflationary pressures likely to reduce towards the end of the year, as the world economy slows, the ECB will have room for two 0.25% cuts in the second and third quarters of the year. This will not only be welcome news for those with existing mortgages, or those looking to take out a loan to purchase their new property, but should also ensure that we will hit a peak in the Euros value against Sterling over the next couple of months. At least buyers in the summer won't have to face further exchange rate deterioration!

For further information or advice please contact us or contact our mortgage partners The Mallorca Mortgage Business at www.mortgagesinmallorca.com

2.3.2008 - Mallorca Property Market Update March 2008

 

The Mallorca property market is, in common with most international real estate markets, is experiencing a general slowdown although few see this as a “crisis”. The reality is that while much of the market has indeed weakened certain segments of the market are still growing, where the supply and demand ratio has remained in balance or indeed where demand is still outstripping  supply.
In common with other markets Mallorca can be viewed from four different aspects – availability of loan finance; buyer sentiment or “confidence / worry”; exchange rates; and local market fundamentals.

• Availability of loan finance – Spanish banks like banks throughout the western world have been impacted by the international liquidity crisis, rising bad debts, as well as their own local exposure to an increasingly weak new build market on the Spanish mainland. As a result banks are generally lending less, are applying more stringent application requirements and, in most cases, are widening their margins (i.e. the interest rates being applied are higher). Although Spanish mortgages generally remain cheaper than those in the UK the differential has narrowed considerably making the option of raising finance at “home”, to fund a foreign property purchase, an increasingly interesting option. With the ECB maintaining a fairly robust stance on Euro zone inflation and interest rates this situation is likely to remain in the short to medium term.
The sensible advice for purchasers is to consider their mortgage requirements at the earliest possible stage to ensure they know, before starting their search, what likely loan will be made available and thus what budget they can work to. To assist clients with their property finance requirements we are partnering with The Mallorca Mortgage Business. If you are about to start a serious property search and would like any help with the funding please contact them at (www.mortgagesinmallorca.com )

• Buyer sentiment – It will go as no surprise that buyers generally, be they local from Mallorca, the mainland or internationally based, are that much more cautious than in previous years. The result is that there are fewer buyers out there and those that are looking, and buying, are doing their homework first, in terms of research and legal due diligence. As a consequence vendors are under pressure to be realistic when it comes to pricing their properties.
Are prices falling? Generally no but some individual property prices are coming down where they have been over priced in the past. The hardest hit sector of the market is certainly the lower end, particularly where buyers require significant loan finance, and while other sectors have also been hit, where supply is limited – frontline properties or rural estates in the best areas for example, some prices are still rising, all be it more modestly. While there is no market-wide evidence of significant numbers of “forced” sales (due to personal financial difficulties etc) this can still be a relevant factor in individual cases.
An interesting anecdotal fact, from an analysis of demand in early 2008, is an increase in enquires from Germany, while demand from the UK has been steady and locally falling. On the whole enquire levels are slightly down but certainly not alarmingly so.

• Exchange rates – For Sterling denominated purchasers the last 3 or 4 months have not helped sentiment, with the slide of the GBP against the euro. In effect this move, which is unlikely to be reversed in the short to medium term, has made any purchase some 10% more expensive. While there is nothing that can really be done to manage this sort of change it is at least very important that when money is transferred it is done through a broker offering the best possible exchange rates i.e. a currency conversion specialist rather than high street banks.  Please contact us should you want further information.

• Local market fundamentals – As we have maintained for some time the Mallorca property market is driven by “lifestyle” purchasers rather than investors and are these are on the whole less fickle. That said many purchasers are purchasing a second home something which can be regarded as a “discretionary purchase” and thus one that may be postponed or cancelled in times of financial uncertainty. On balance, and in line with our comments regarding enquiry levels from the different major markets for Mallorca property set out above (see buyer sentiment), demand is slightly weaker, but by no means gone, particularly at the higher end of the market and where buyers are less sensitive to the tightening credit situation (cash buyers or those able to put down a sizable amount of equity)
On the supply side, unlike in many mainland coastal areas, Mallorca does not have a large over supply problem of new build property. Furthermore many developers have reacted quickly and have sought to delay the start of new projects. Coupled with this, last summer saw a local government change in the Balearics and the introduction of even tighter planning regulations, further controlling the supply side. Generally therefore we see the supply side controlled and not something that will exacerbate any weakness in the market.

In conclusion our opinion is that while there is undoubtedly increased weakness in the market, and over priced properties are either being repriced or will remain unsold, value can be found in good quality well located properties. 

2.3.2008 - Second Monthly Fall in Mallorca Mortgage Interest

 

On a day of mixed blessings for Spain’s consumers and property owners, the office of National Statistics announced that the average monthly Euribor rate (reference rate for Spanish mortgages) for February fell to 4.35%, from 4.5% in January, its lowest level since May 2007, while by contrast inflation rose to 4.4%, it’s highest since January 1997 and 1.9% higher than the same time last year.
In relation to the Euribor fall it is important to note that despite this improvement the rate still remains some 0.3% higher than at the same time last year meaning that those with mortgages reviewed annually in February will still see repayments rise. Those reviewed six monthly will however benefit from a repayment level drop since rates stood approximately 0.35% higher in August 2007.
Resources: For new or re-mortgage advice contact The Mallorca Mortgage Business at www.mortgagesinmallorca.com      

2.3.2008 - Sol Melia Seek Hotel Conversion in Mallorca

 

Sol Melia owners, the Escarrer family, have called on the Balearic Government to change planning regulations in order to permit the development, and conversion of existing hotels, into “condehotels” – establishments where private individuals are able to purchase rooms for their own use or for leasing back to the hotel operator for reletting.  Sol Melia highlighted Alcudia and the South West Mallorca area of Calvia (which includes Magaluf) as areas which could particularly benefit from such a change.
The condehotel formula is not new, having being implemented successfully in many markets around the world, including certain regions of the Spanish mainland. Those who favour a change in the planning regulations argue that it will encourage new investment to upgrade outdated accommodation; broaden the offer of holiday accommodation, while protecting and preserving employment levels in the tourist industry.

Story provided by Mallorca Property News (www.mallorcapropertynews.com)

2.3.2008 - Palma Mayor Promises New Resources for Beleaguered

 

The Mayor of Palma, Aina Calvo has promised new resources and an overhaul of the Palma planning department in order to dramatically reduce the time taken to deal with new applications. At present cases submitted as long ago as March last year are only now being considered. Aina Calvo promises that the changes should ensure that by 2011 the average time to process an application should be 3 months or less.
Time will tell whether she is successful and whether other areas of the Island follow suit in what is currently a lengthy and hugely frustrating process for all concerned.
Resources: For development management, site finding and general development and investment consultancy contact Mallorca Chartered Surveyors at www.mallorcacharteredsurveyors.com