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May 2009

22.5.2009 - Property Investment Opportunity in Mallorca

 

Opportunity to acquire 119 front line studio apartments with community pool in Mallorca and all with own kitchenette and one bedroom etc Sales price is €4.75M equating to only 39,900 euros per apartment!

Even better each property has it's own deeds and electricity meter and is registered with the tax authorities as a private property, and thus could be sold individually as and when required, or if required!(holding the lot as a long term holiday rental business looks very attractive!)

The apartments have licences to let as holiday rental properties (not easy to obtain now in Mallorca and an operation being increasingly regulated by the authorities) and thus the investment is capable of an immediate income return.

Opportunities include:
Operate as holiday letting business making a sizable income return on the capital outlay.
Hold for 3 or 4 years and put in place a partial or complete break up of the investment selling the same as individual units or groups of units to small / medium sized investors.

Please contact David Novi for further details

Mallorca Chartered Surveyors

14.5.2009 - Mallorca Property Prices Report

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A war of words has broken out between developers on the Island of Mallorca and the College of Technical Architects (Aparejadores) over what is happening to property prices in Mallorca, and the outlook for the future. 

Unsurprisingly the developers, many of whom have large stocks of unsold properties (although not as large as those on the Mainland), argue that prices won't drop further fearing, no doubt, that buyers will sit on their hands waiting for further falls before committing to any purchase. Official figures from the Instituto Nacional de Estadistica (INE) suggest prices across Spain fell by 9.2% between April 2009 and the same month last year. Tinsa, one of Spain's largest valuers, published a similar figure of 10.1%, although referred to a figure of 17.1% for the Mediterranean coastal areas and 10.4% for the Balearic Islands.

Although these figures do not take into account falls prior to April 2008, official figures of price movements since the top of the market passed are not more than circa 15% and therefore along way short of what is happening in other countries (UK, USA, Ireland etc) where similar property price bubbles have been experienced. As we have mentioned on a number of occasions it seems much more likely that the statistics in Spain are inaccurate rather than that Spain is suffering less, and price reductions are subsequently lower.

Anecdotal evidence, where sales are being achieved are of price reductions much nearer 30 - 40% with the largest falls in areas with greatest over supply problems and poorer quality properties. While Mallorca has very significant defensive qualities - more limited over supply of unsold new build properties; a history of "lifestyle" purchasers rather than speculative investors; a top quality international brand; and a large stock of top quality luxury properties, we have long maintained that property values in Mallorca have fallen although in many cases this has not been reflected in asking prices, many of which have remained stubbornly high.

It is thus refreshing to hear that our fellow professionals, the Aparejadores, believe that where sites are being purchased for future development these are being done so at values which will allow subsequent sales to be done at up to 30% below the "boom time" levels. They quote land prices of between 42,000€ and 48,000€ per dwelling, on small unit schemes, compared to 102,000€ and 108,000€ at the height of the boom and the start of the credit crisis.

Clearly this will have a direct impact on second hand property values and those of the unsold stock of new build properties.  Even if asking prices don't drop the reality is that actual sales prices, particularly where mortgage finance is required and where the bank valuers are coming in with much lower figures, need to fall if buyers are to commit. The key for buyers is to thoroughly review the market, if necessary seeking independent valuation advice, and to negotiate hard. This is a buyers market (and yes there are some good buying opportunities) so don't be the one that over pays because someone says Mallorca property prices "don't really fall"! (each individual case needs to be assessed on it's own merits and some properties will see lower price reductions than others but no property, however special, can be total immune to what is happening, so as the saying goes "buyer beware" !! 

Resources:

The Mallorca Mortgage Business

Novi Property Mallorca

Properties International Mallorca

Mallorca Chartered Surveyors

Property Finders in Mallorca

Mallorca Property News

View PDF file4.5.2009 - Spanish Property update - Interest & Exchange Rate

The international financial back drop for the Spanish and Mallorca property markets remained largely unchanged over the last month although the expected long term trends for exchange and interest rates appear to have been established despite ongoing uncertainty across the globe.

Interest rates in the US and UK seem to be close to their bottom (not least because they are close to zero!) and expectations are that they will remain at these levels for some considerable time with any increases not anticipated until 2011. The emphasis in the US and UK will stay with quantitative easing measures to improve cash flow in the credit markets.

In the Euro Zone on the other hand interest rates remain relatively high at 1.25% and while the ECB talks of  announcing measures to ease private sector credit, the reality is that these are much harder to introduce in a "multi state" Europe and where no procedures exist to indemnify the Central Bank against losses resulting from asset purchases. At least in part this should mean that the ECB will have to continue to reduce interest rates, despite their reticence to do so, in contrast to central banks elsewhere.

The RBS only anticipate one further quarter point drop although at Novi Property we feel that the structural weaknesses in the Euro Zone, coupled with the more restrictive position of the ECB regarding quantitative easing methods, could mean one further quarter point cut may be needed. On the exchange rate front, and particularly the relationship between Sterling and the Euro, the trend of a more stable Sterling, and a move to longer term weakening of the Euro, has continued. Much of the weakness of the UK economy, and on going downside risks, seem to have been factored in to the current Sterling rate, while that does not seem to be the case in Europe where the expectations are that the single currency will continue it's decline against the dollar and start to suffer against Sterling (the Euro lost 2% agaist Sterling last month). 

As we have maintained for sometime this backdrop for prospective purchasers of Mallorca property is reasonably favourable although the big question for  Sterling denominated buyers is how to time any acquisition to take advantage of the anticipated strengthening of Sterling / weakening of the Euro. While buyers may wish to look at delayed completions and multi currency mortgage finance, UK national vendors of Mallorca and Spanish property face a very different problem - how to achieve a sale as quickly as possible and in a very weak market, if they are looking to repatriate sales proceeds back to the UK and take advantage of  Sterling's current weakness against the Euro.

Where a buyer is Sterling denominated and vendor a UK national seeking to repatriate funds it is vital that the dynamic of the negotiations includes a currency / exchange rate element, if a fair and equitable deal is to be found that can satisfy both parties and facilitate a deal. By way of example:

A property valued at 500,000€ would "cost" a Sterling denominated buyer 454,000 pounds at today's exchange rate of 1.10 Euros / Pounds. Assuming the purchase were delayed  9-12 months this "cost" may well have fallen to 400,000 pounds if the exchange rate has moved to 1.25 Euros / Pounds, as is forecast, ie 54,000 pounds / 12% less. Of course the opposite has happened to the hypothetical UK national vendor of the same property. Rather than receiving the 454,000 pounds he / she will only have 400,000 if the sale is delayed. It could thus be argued that if both parties want a deal then some middle ground should be found where perhaps the buyer agrees to pay now but pay a little less and the vendor accepts less in exchange for an early completion. 

Equally in such a weak "buyers" market it could also be argued that with "buyers" so few on the ground a vendor might do better accepting a lower offer now, rather than holding out for something higher in the future, not only because of the uncertainty of whether another buyer will be found but also because if and when they do come forwards the exchange rate will have moved against the vendor. In our example the vendor might well be advised to accept an "offer" today of 440,000€ which when exchange and repatriated at an exchange rate of 1.1 Euros / Sterling will give him / her 400,000 pounds, rather than hold out for 500,000€ in the future which will not only, in all probability, be worth no more than the 400,000 pounds they would get now, but also has the very significant element of uncertainty given that the buyer may well not be there at all in the future ("bird in the hand"!!)

The "win / win" option is for the vendor to sell now at the prevailing high Euro / Sterling exchange rate but the buyer to delay having to exchange his / her Sterling to Euros which can be done, at least in part, via a multi currency mortgage (ie the mortgage is taken out in Sterling but later converted to Euros when the exchange rate is more favourable. Obviously there is still a need to pay a deposit in Euros, likely to be 40% in the current market with prevailing Loan to Value Ratios, so the buyer will still want a discount but only on 40% of the purchase price not 100%.

In our case the purchaser may want to reduce the Sterling equivalent of the 40% deposit on the 500,000€ purchase price from 200,000€ (ie 181,000 pounds at today's exchange rate of 1.1 to 160,000 pounds based on an exchange rate of 1.25 that they may have got delaying the purchase for 9 -12 months). The overall purchase price would thus be agreed at 21,000€  less (ie 479,000€) rather than 60,000€ less (ie 440,000€) in the example above. The buyer is left in the same position as before while the vendor is 39,000€ better off. (Please contact David Novi BA MPhil MRICS if a multi currency mortgage might be of interest) Continuing the "mortgage" theme, although these are not easy times for obtaining credit, if you do have a stable income profile, some excellent deals are now available for prospective purchasers with banks seeking to "entice" new good quality clients to help balance their lending portfolios against the ever increasing number of existing bad debts on these books, resultant in part due to their own imprudent lending practices. Again contact us for further details.

Resources:

RBS Interest & Exchange Rate Forcast (see attached)

The Mallorca Mortgage Business

Novi Property Mallorca

Properties International Mallorca

Mallorca Chartered Surveyors

Property Finders in Mallorca

Mallorca Property News