Mallorca Property Market Report

Spanish Property Market “to fall further” – Is it the same for the Mallorca Property Market?

Last week (May 12th 2011) saw the release of various reports on the sickly Spanish property market none of which made easy reading for those trying to encourage buyers that the market has touched the bottom and the only way for prices now is “upwards”. The general conclusion was that prices would continue to fall in 2011.

The first came from the Valencian Institute of Economic Studies (Instituto Valenciano de Investigaciones Económicas) that suggested that although that the price of Spanish real estate had fallen more than in other downturns they argue that a fall of an additional 12% is needed to bring prices to their theoretical level of long term equilibrium.

A second report came from major Spanish Bank the BBVA, that argued that prices would fall a further 10% in 2011, that prices remain too high despite a 20% fall since the down turn started in 2007 (as we have commented in previous reports the Spanish property market is characterised by slow price adjustments in a downturn when compared with markets such as the UK and US where downturns are more sudden, sometimes deeper but generally shorter lived)

The last report is more neutral, and came from Standard & Poor (S&P) who argued that residential property prices would not experience any major further falls in the next 12-18 months as sales activity improves but adds that it will take various years for the supply / demand side equation to come into balance so don’t expect growth in prices to come for some time yet.

So am I surprised and do I agree? Well no and yes! I have long maintained that the Spanish property market would not really turn around until circa 2015 so that any reports talking of weakness and lack of growth, or market fundamentals remaining out out of balance, do not come as any surprise to me. Don’t get me wrong I am not saying the Spanish property market will remain in free fall until 2015, rather that I can not see any real growth in the market (ie above inflation) until at least 2015.

As I reported in my major market report in March, “Spanish Property Market – RICS European Housing Review – What does it mean for Mallorca House Prices?” firstly the demand / supply dynamic has a long way to go before equilibrium can be reached and secondly the demand side needs to become much more broadly based until we can talk of a market capable of generating real sustainable growth.

Equally however regular readers will know I have maintained that in my mind underlying Mallorca property values have reached the bottom but that there is a delay in owners understanding this and reacting by reducing asking prices accordingly ie the asking prices are in many cases lagging the real underlying market (some of my older reports seek to explain why that may be the case). My advice to buyers has therefore been “buyer beware”, buy with care and at an appropriate price and you can buy well but if you are not careful you could well get your fingers burnt. By way of example and as a rule of thumb I refer to the sales I have assisted with over the last 12 months. In each and every case the purchase prices agreed have been some 25%-35% below where those prices would have stood at the height of the market ie some way less than the 20% quoted, for example, in the BBVA report above for what the market has fallen to date in Spain (Spanish Property market Statistics are notoriously bad and certainly lag the market). In other words I recommend buyers to have in mind what the property was worth in 2007 compare with the asking price today and if it is not 25%-35% less at least ask the question “why” (there will always be examples of properties that may justify smaller falls but equally there may be others where the price adjustments should be more than 35% ) ie “buyer beware” or more importantly “buyer be well prepared and market informed”!

I do feel that the Mallorca market, for mid to higher end residential real estate, will benefit from the improving or stable economic situations in destination countries such as Germant, Sweeden and other Scandinavian countries, and also aticipated strong upturn in the tourist ecoomy at least partially assisted by the unrest in North Africa. All this should assist the local Mallorca economy to before some what better than elsewhere in Spain and demand for property to be stronger (that is not saying that this demand will drive prices higher but should ensure there will be  a firmer floor under the market than else where in Spain.

Should you wish to discuss any aspects of this report please feel free to contact me