Mallorca Property Partners December 2010 Update: do Mallorca property prices have further to fall?

Dec. 9, 2010 - PRLog -- It is understandable that property buyers are focussed at present on whether prices are likely to fall further. Economic instability continues to be headline news so, whilst prices have fallen and it is a "buyers market", nobody wants to buy now and find they might have bought for less further down the track.

With regard to Spain, the Knight Frank 2011 Global Residential Market Forecast, predicts that Spanish property prices will have fallen be 4% by the end of 2010. They predict prices will fall by a smaller amount of 2% in 2011.

The October 2011 IMIE report from TINSA, a leading Spanish property valuation consultancy, shows prices in the Balearics and Canaries fell by 5.5% year-on-year to October 2010. They do not make a prediction for 2011 but it seems likely the figures will reflect Knight Frank´s outlook for Spain as a whole with a further but lesser decline when averaged across the Canaries and Balearics.

On this basis many would judge it sensible to wait before buying. However, while market statistics have their role to play, they show averages across different types of location and for properties with very different price dynamics that can be misleading in this context.

The Balearic and Canary Island property markets include properties both in the domestic and international sectors:- ex-pat/holiday homes and other second homes owned by foreign buyers. Prices across these range from under 100,000 Euros to 20 million or more. Lumping the market data together makes little sense. Within Mallorca itself the lower priced holiday resorts such as Cala Romantica and Cala Millor have very different market dynamics to the most sought-after locations such as Portixol.

This is also true of the way property trends are reported in the UK. Recent reports show prices to be under pressure across the country excepting for London where prices have increased when in reality, it is the prime central London locations that have risen where prices are well supported by wealthy foreign buyers. Prices other parts of London are under pressure the same as other parts of the country.

While you can find statistics to this level of detail in London they are not available in Mallorca. A more detailed understanding of the market here can only be built through on-the-ground experience.

Our view on the market is drawn from the enquiries we receive and regular discussions with estate agents, lawyers and other property professionals across the island. The picture this paints ties in with the predictions made in our 1st QTR 2010 update which outlined how prime properties decline later in a downturn than non prime properties. They also decline at a slower rate, start rising again sooner when there is a recovery and increases more significantly from there-on.

While the global economy does not yet show signs of a solid recovery, there has been noticeably more activity at the top end of the Mallorca property market. The indications are that more sales of upper mid-range properties are also beginning to take place.  

This same trend is not evident at the lower end of the market, nor in the domestic sector and this indicates that prime properties in Mallorca have more-or-less reached a "market bottom" whereas non prime properties potentially have further to fall.

This is not to say that you should only consider buying into prime locations at present. If you are not however you should be confident you are getting a deal that gives you some leeway if prices do indeed fall further.

Our advice though is that the prime locations offer the most secure investment  opportunities and have the greatest potential. "Prime" in the context of Mallorca means properties for which there is a strong international demand.

These observations are hopefully of some use, but to buy well, you need to drill down to street level within the locations you are considering and you need to look out for sought-after features such as sea and mountain views, proximity to the beach and so-on.

You also need to get a good price! This can be difficult to judge as there is a lot of variance in the asking prices of similar properties in Mallorca. The reason for this is the high proportion of properties that are second homes or investments. For example:

- Someone who wants to sell their holiday home but is not under any financial pressure may choose to stick with a price that would have been more realistic before the recession. They can be more relaxed about waiting for the "right buyer". If the right buyer does not come along in the short-term they can wait for the market to recover. The holiday home is not their main home, so moving is not a necessity and this keeps some prices above what would be a realistic sale price in the current market.

- There are however many people under financial pressure and, in this instance, the fact that the property is not their permanent home means that they have the opportunity to get some cash in quickly by accepting a price below even current market values. Such "opportunist" sales push some asking prices below what would be considered the current market value.

Our advice is to give less regard to asking prices and make your own assessment of the property value and judge the opportunity accordingly.

On this basis, the complete answer to the question posed in the title is:

1) that asking prices of lower-end properties in Mallorca most likely have further to fall and, in some instances, could take years to recover;

2) asking prices of high-end properties are bottoming out and the indications are that mid-range properties in prime locations will follow the same trend;

3) in all instances, prospective buyers need to be careful to identify quality properties (those with features that appeal in the international sector of the market) and which are realistically/competitively priced.

Ultimately, being successful in taking advantage of the this buyer’s market is dependent as much on how you go about it as it is on timing.

There are two other related topics I´d like to mention here.

The key point is that to enter into the current market without understanding the locations and market dynamics in some detail means taking a risk. This would be true of investing in property in any country. In your home town you probably know how the market works, but few international buyers have the necessary on-the-ground knowledge of Mallorca; it is not something that can be built sufficiently during one or two holidays combined with a few viewings.

Armed with the right knowledge however you should find there are some outstanding investment opportunities available right now and it is unlikely you will be able to improve on these by waiting. Mallorca Property Partners (http://www.mallorcapropertypartners.com) has 11 years of experience in the Mallorca property market and this can be utilised on your behalf. Please contact us via the link below to find out more.

You may also be interested in our bi-weekly newsletter. It has our selection of the most interesting property opportunities, market insights and advice on buying. You can subscribe from the front page of our website (see link above).

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Mallorca Property Partners is the longest-established property finder service in Mallorca. We cover all of the prime areas and all types of properties as well as offering a comprehensively range of supporting services throughout your search and purchase.