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Blue Chip Property Culture Aids Mallorcas Recovery

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August 1, 2009

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Even if we’ve seen the worst of the global downturn as summer comes to an end, there’s still the little matter of a glut of unsold properties. The good news is that maintaining the crucial balance between supply and demand has always been part of Mallorca’s bluechip property culture – a seal of quality in difficult times. “One of Mallorca’s big attractions is undoubtedly that local government severely restricts any new developments”, agrees Martie Quick, Director of the Engel & Völkers office in Santa Ponça.

“The aim is to maintain a sustainable balance between the island and its population”, Quick told abcMallorca, “and looking at the controlled fashion in which development has taken place over the years, it certainly works.” Not so on the Spanish mainland, however, where there’s still an enormous backlog this autumn of more than one million unsold newly built homes – 1,050,000 to be exact – according to a recent report from the real estate business school, Instituto de Práctica Empresarial (IPE), based in Madrid.

The picture painted by the Instituto report is not a pretty one:
  • Andalucia and the area around Valencia are identified as the two regions worst affected
  • It’s hard to believe, but between them they account for a massive 40 percent of all the unsold new property in the country
  • Valencia is hardest hit, with as many as 155,185 new properties languishing unsold along the coast
  • And even inland regions such as Extremadura – marketed to foreigners just a few years ago as “the real Spain” – have not escaped unscathed, with an estimated 8,000 new homes waiting there for cash-rich buyers.

But a good many of those pristine apartments and villas are likely to be waiting patiently for another two or three years at least. Although there are initial signs that the European market – and Spain with it – is in the process of bottoming out, there’s also considerable research which argues that a real recovery won’t begin until 2012. Take for instance, BBVA, Spain’s second-largest bank, which suggested recently that property prices will drop 10 percent this year and another 12 percent in 2010 – bringing the total fall, from the peak to the bottom of the market, which it anticipates in 2012, to as much as 30 percent.

Interestingly, BBVA puts the glut of new homes even higher than the IPE – at around 1.2million properties currently, and expected to rise to 1.5 million by the start of next year.

Next in the line of pessimists comes Citigroup, which issued a new report on the European property market recently, forecasting that the slump in Spain will last another five or six years – hitting this country harder than the rest of Europe because the boom was more extreme here. And what about this for a sign of the times: a new property investors’ club called Circulo Financiero Internacional (CFI) has started bus tours of distressed real estate along the Costa del Sol – something that has been seen up to now only in the United States.

A spokesman for the company confirmed that the first tour took place in May, attracted German, Russian and some Spanish buyers, and visited new developments in Marbella, Benehavis and Estepona. He said that discounts of between 20 and 40 percent were quite common, with some even as high as 50 percent.

“The market is stagnating and owners need to shift these properties”, he said simply. “In some cases they’ve been built and paid for, in others they’re in danger of or in the process of being repossessed, and some already belong to the banks.” So, not for the first time, the good news for Mallorca is that it’s surrounded bywater – with a self-contained market which leaves the mainland looking not alone unattractive, but unreliable. And it’s the reliability of the Mallorca market which appears already to be paying dividends – with the first green shoots of recovery being detected well ahead of most of the rest of Europe. “There is a market once again”, declares Michael Cunnington of MJC Associates, who work with Savills. “The winter months were tough”, he admitted to abcMallorca, “but happily we’ve been seeing a definite revival of interest. And needless to say, a good many of those prospective buyers are looking for opportunities, for a ‘good deal’.” Martie Quick of Engel & Völkers believes it’s Mallorca’s easy accessibility from northern Europe which continues to underpin its attractiveness to foreign buyers, particularly Germans, British and Scandinavians.

“Our location here in the heart of the Mediterranean means we’re only two hours’ flying time from most European cities, and nowadays flights can be found all year round. That’s hugely important.”

Happily, despite the economic climate, says Quick, the Spanish Airports Authority (AENA), announced in March that it will invest a total of €352 million in the three Balearic Island airports – of which a substantial €240 million will be spent on improved facilities for Mallorca’s airport between now and 2012. And that’s not all, he points out. The local government has already pledged €4 million to be spent on roads, tunnels and better rail links. A new €23 million jetty is planned for Palma’s West Quay, allowing “mega” cruise ships to dock for the first time. And more than €120 million is currently being invested in the new Congress Centre, which is scheduled to open in 2011.

“In my opinion, Mallorca’s enduring popularity stems from the fact that it manages successfully to combine this sophisticated infrastructure and these modern facilities with its natural beauty, authentic villages and traditional culture.

“At the same time it manages to be safe and secure for families and for celebrities. Even the Spanish royal family has a summer residence on the island. Nowadays that type of all-round package is increasingly rare.


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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.