Up until a few weeks ago, there were strong denials from agents in Mallorca that the island had been affected by the general downturn in mainland Spain, according to Jan Westwood, a buying agent with The Property Finders. While development saturated the market in Spain the balance of supply and demand was better managed in Mallorca.
Why the Mallorca market is different
Among these are the ever decreasing plots of land where licences may be granted for apartments, especially in the south west, the most popular area due to its excellent infrastructure and proximity to the city of Palma.
In Puerto Andratx, developers have been forced onto smaller and smaller sites, with difficult access and none too favourable orientation. The increased construction cost at these sites was of course passed on to the buyer, to the point where a new two bedroom, seaview apartment at Nido de Aguilas (Cala Moragues) or Sa Cala (Cala Llamp) set you back between €5,700 and €7,330 per square metre. Developers now have to source land in other parts of the island, notably the south east around Porto Colom and the east coast, north of Porto Cristo.
During the summer, as the availability of mortgage finance was drying up, developers were struggling. According to figures from the Observatorio Joven de Vivienda en Espana, property in Mallorca had become completely out of reach for young, first-time buyers. Their current average monthly salary is €1,182 yet a typical mortgage repayment of one third wouldn’t even buy a studio. We saw the failure of well known companies such as Fadesa and real price competition with cuts of up to 30% on some developments. Yet these often characterless complexes of 150 units or more in the Palma suburbs were not the type of development typically attractive to overseas buyers. Of cheap construction with tiny balconies there was no communal outside space or facilities.
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As the Euro strengthened, tourist figures in July and August took a knock. Taylor Woodrow were one of the first overseas developers to offer reductions at Pollentia Mar in Puerto Pollensa – 2 and 3-bedroom apartments 50 metres from the beach, set in landscaped gardens with community pool. Starting prices were openly reduced from €254,000 to €210,000. On the east coast, where it will take time for the infrastructure to improve, they were accepting offers 20% below asking prices.
During the autumn, with dwindling numbers of British buyers, agencies dependent on the “bread-and-butter” apartment market in the south west, particularly Nova Santa Ponsa, began to cut prices by 10-15%. A few have now closed their doors (not necessarily a bad thing – at the last count there were 35 inmobiliarias (estate agencies) in Port Andratx alone).
Cash buyers’ market
It’s clear that cash purchasers have a distinct advantage in being able to negotiate significant discounts, not just with developers, but in resales as well. For vendors who need to sell, it will depend somewhat whether the banks are prepared to renegotiate mortgage terms with those who get into difficulties. There are already a few opportunities as repossession looms – in Bendinat, the owner of two sea view apartments, bought side by side for €2.5m and joined into one, creating a five bedroom property, is now prepared to accept €1.5m. An apartment in Casco Antiguo, the old city of Palma, which was on the market for €1.1m, is now going for €600,000.
So what’s happening to the rest of the market? There’s little movement in mid range detached houses (up to €2m). A real problem in Mallorca is that so many properties are second homes, and the vendors don’t need to sell. It’s not unusual for a house to take 18 months or longer to find a buyer. With so much uncertainty at the moment, they may just wait for the market to pick up. To this end, there has been a marked increase in the number of properties offered for long term rental. The Mallorca Magazin (the local German language weekly) has an unprecedented number of listings but as the weeks roll by, I am noticing the rates gradually falling. A four bedroom, stone faced, character property in the highly sought after village of Capdella in the rural southwest, asking €4,750 per month in August has dropped to €4,000. The asking price for sale has similarly dropped from €1.9m to €1.75m.
At the prime end of the market, it’s a different story. Those British buyers still coming tend to be the biggest spenders and published asking prices are still firm.
However, in the knowledge that the market has generally been overpriced and that there are fewer potential buyers out there, it’s only to be expected that buyers will feel more confident in trying to negotiate prices down. Whether vendors are equally confident and able to sit out the downturn in light of the global recession remains to be seen.
Jan Westwood is a buying agent with specialist knowledge of the market in Mallorca. Contact: www.thepropertyfinders.com; +34 971 233 207