Mallorca Property Market Report October 2010

Introduction

It is 6 months since I wrote my last Mallorca Property Market Report and it is always a little bit worrying going back to reflect on what one has said and, whether with the benefit of hindsight, an alternative conclusion might have emerged! Back in March the big question was whether we could call the “bottom of the market” and what that might actually mean in practice – one thing is a market that has touched bottom and ready to move up the gears quickly, with real growth just around the corner, while the other is a market where values have bottomed out but the expectations are much less about growth and much more about “stagnation”!

My conclusion at the time was that we may indeed be able to call the bottom of the market if we were to define it in terms of reaching the “bottom of the cycle of underlying residential property values in Mallorca” (please note the very important reference to underlying values, something very different to, for example, asking prices!). More specifically:

March 2010 Market Report Conclusions

1. Underlying values to bottom out at current levels
2. The evolution of asking prices to vary dependent upon whether they have been set realistically / adjusted sufficiently to account for the significant falls in property values.
3. Future growth in values to be non existent in the short term and very limited and restricted to underlying inflation in the medium term ie no real growth in the next couple of years. Modest growth over above general inflation levels in the economy to follow thereafter at levels of 1-3%
4. Special properties with “unique” qualities – front line; very good sea views; restrictive planning conditions – rural fincas; high quality developments etc to perform better / out perform the market in the medium / long term.
5. Land values to hold down prices in the medium term as developers take advantage of cheaper land to sell at these new lower levels for the medium term. Long term shortage of supply, save for those in urban areas and for “mid range” apartments, like Palma, Inca and Manacor, should see values rise

Alongside these conclusions I set out a few “tips” or recommendations for both owners and potential investors of Mallorca residential property:

1. If you are a lifestyle purchaser or investor with an income return bias start to look at the emerging buying opportunities BUT..
2. “BUYER BEWARE” it is all about value and ensuring that you buy at an appropriate level and don’t over pay on unrealistically priced properties.
3. Look at new build where good discounts are available (but beware of off plan unless your deposit(s) are backed with a bank guarantee)
4. Look at properties with “defensive” qualities, as set out in (4) above, for greater short term security
5. Look at land to hold as a long term investment / to build a home. Particularly rural plots, front line or with very good sea views etc

Market Update March 2010 – October 2010

So what has been the reality of the last 6 months? Have my conclusions been largely borne out or has hindsight led us to see that we should have reached alternative conclusions?

Lets start by reviewing the statistics and data that have emerged since the March 2010 report and what the so called specialists have been saying. But before that let’s enjoy the headline that greeted me this week that none other than the Spanish Prime Minister had just called the bottom of the property market in Spain! While I am immediately cynical when it comes to anything said by a politician, particularly when it is a Foreign PM talking to US investors in a desperate attempt to convince them to buy bundles of government bonds at the lowest possible yield, he did seem to be confirming what I said, namely that we are at the bottom and although it is true that I said it 6 months ago, if prices have largely remained unchanged over that period, then it could be said that it was the bottom then as well as now!

The problem for me is that Zapatero then proceeded to get over excited, quoting official statistics that appeared to indicate that in many areas of Spain prices were starting to rise ie we had touched bottom and wey hey we are on an upward trajectory again! So let’s look at the emerging data, starting with ZP’s own Housing Ministry.

National Institute of Statistics (INE) According to new figures from the INE, Spanish property prices rose (quarterly) for the first time in 3 years. More specifically these figures claim that average prices at the end of June were 1.6% higher than at the end of March although over 12 months prices are still down but by just 0.9%. For the Balearic Islands / Mallorca the statistics weren’t quite as rosy but still offered “some positive” news for those desperate to call the end of anything called recession / crisis / market crash etc! Here the overall figures put property values unchanged for the last quarter but down 2% for the year. For new build property it appears there is a “rebound” with prices up 1.4% even though for the last 12 months prices remain 2.5% down. Second hand property values were down 1% for the last quarter and 1.6% over 12 months.

Interestingly only Navarra in Northern Spain came out with worse data with a small fall of 0.1% in the last quarter. In other