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2010 Property Fight-Back Will Show the Best of Mallorca!

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December 1, 2009


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It’s natural to cast around for seasonal cheer as the year draws to a close, so here goes: Europe is climbing out of recession just in time for Christmas, and the decline in resale property prices has begun to slow across Spain. The fight-back begins in 2010 – when we’ll undoubtedly see the best of Mallorca!

Admittedly it’s not much on which to base a Merry Christmas and a Happy New Year, but it could have been so much worse. France and Germany have both emerged from recession: the former in Q2 2009 with better-than-expected GDP growth of 0.3 percent, while the latter rewarded Angela Merkel with a second term as Chancellor.

In the UK though there’s little, indeed no, reason for seasonal cheer. According to the IMF, the economy will continue to shrink in 2010 – by a predicted 0.2 percent – leading to concerns that what started as recession will end as a depression. And with a general election in the offing, the route to recovery has become a political football.

Spain as a whole, it has to be said, isn’t much better. “There are no green shoots around here”, admitted a gloomy Fernando Rodriguez y Rodriguez de Ancuña, President of influential real estate analysts, R. R. de Ancuña & Asociados, when he launched their hard-hitting annual report recently.

The report offers this key statistic in support of that gloom: with a total of 1.6 million homes on the market, and demand in 2010 expected to run at around 220,000 homes, it will take six or seven years – in other words until 2016 – for the glut to work its way through the system.

That’s bad news for mainland vendors. But there’s even worse for developers. Believe it or not, Rodriguez y Rodriguez de Ancuña forecasts that 75 percent of developers will be wiped out in the next five years by a combination of lack of business, growing debt and inadequate management.

His logic seems inescapable. “It gets increasingly hard for developers to refinance”, he explains, “with assets they either can’t sell or which are already mortgaged – and are being increasingly devalued.”

And Mallorca? Well, no such problems of oversupply here. The good news, in fact, is that some market watchers, among them Andrew Spence of developers, Bendinat, believe there is now reason for a touch of cautious optimism – given the enduring desirability, indeed glamour, of the island’s market.

“Despite a very slow start to the year, the market for good properties picked up in Q3 2009”, Spence told abcMallorca. “There’s a lot of pent-up demand from those who’ve held back on purchasing over the past two years – and there’s no doubt about it, now is a good time to buy.”

The new-found unwillingness of banks to part with their money, of course, has been a major factor in the continuing contraction of property markets around the world. But here too, Spence detects a slight easing.

“Yes, the banks are a crucial factor”, he admits. “But with perseverance mortgages are available – though it’s true that the terms and conditions, particularly the percentage of the property value you can borrow, are back to what they were in the late Nineties.”

Ironically, given the horrific state of the Spanish market, it’s the banks – as pointed out in La Vanguardia recently – that are injecting what little activity there is into the flat-lining real estate sector. How come? Because they’re offloading their property portfolios at record discounts, that’s why.

It’s a fire sale that’s been attacked by some critics as “scandalous” – particularly given that much of the property was financed by “reckless lending” by the banks in the first place.

For instance, Santander, Spain’s largest bank (who purchased Alliance & Leicester in 2008), sold 24 flats in Madrid in one day and 41 more in just two weeks in Cordoba. La Caixa, Spain’s biggest savings bank, sold 35 flats in Pamplona in just three days, with discounts of up to 25 percent, while Caixa Cataluñya, the Barcelona-based savings bank, has apparently sold more than 1,200 homes this year. The properties are a drag on their ailing balance sheets – while even discounted sales are cash in hand.

So broadly speaking, the state of the Spanish property market as 2009 comes to an end looks like this:
• Overall, new residential property prices are continuing to fall – down 7.7 percent over 12 months, according to the Instituto Nacional de Estadistica (INE), the national statistics institute
• Resale prices bucked that trend for the first time – falling 12.5 percent in the first three months of the year, with that decline slowing to 11.2 percent in the second three months

It’s not a pretty picture – and it’s in stark contrast to Mallorca’s multi-million-euro high-end market, where the right properties coming onto the market can still be snapped up as if all were right with the financial world.

“Even in a turbulent market, a frontline penthouse property in a good location will always hold its value”, insists Andrew Spence of Bendinat.

“So while in the current climate the average buyer expects high levels of discounting, owners or developers who have exceptional properties will expect to achieve their asking price. In fact, I know of two cases where the full asking price, to the centimo, was achieved. That’s something not many people can say in today’s property world!

“Houses have also fared reasonably well this year, though again these must be prime properties, realistically priced. It’s also true that buyers are wary. There’s a move to buying completed properties at the moment, rather than buying off-plan. Clients will only deal with established developers, or buy in areas that are well established or have something special going for them …”

That should come as no surprise. Like everyone else, they’re looking for the best of Mallorca!

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Peter Cluskey

Peter Cluskey

An Irish journalist who worked for some years as a war correspondent for the national television station in Ireland – RTE. In recent years, he has specialised in writing about the real estate market worldwide – focusing particularly on the luxury second home destinations. He is a sought-after contributor to a number of international property publications, based on his reputation for well-researched and excellently written articles.