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Political change in Mallorca brings welcomed optimism

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July 1, 2011

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There’s a bracing wind of change blowing through Mallorca this summer: Germany and France are making a steady economic comeback, there are encouraging signs of growth in the Balearic property markets – and the local political landscape is almost unrecognizable.

Not before time. The political system on Mallorca was badly in need of an overhaul. And boy did it get one in the municipal elections. It wasn’t so much that the Partido Popular (PP) scored a resounding victory – it was more that the Socialists had become so deeply unpopular that they couldn’t even rally their own voters. They shot themselves in the foot instead.

Why does this matter in terms of property? That’s easy. It matters because of market sentiment.
The PP won all the important local councils from Inca to Manacor and from Calvià to Palma. And while this would not normally feature on the pages of abcMallorca, this time it does – because change is in the air. And change is good.

That’s also the view of the Balearic Confederation of Business Associations, whose president, Josep Oliver, said he was optimistic that the PP would now live up to its manifesto promises to revive the local economy, support the business sector, and generate jobs. The president of Mallorca’s Hotels Federation, Marilen Pol, was optimistic too – and she also had the need for rapid action to combat record unemployment firmly at the top of her federation’s wish-list. First and foremost, Ms Pol said, she wanted the new local government to take whatever steps were necessary to “guarantee stability” – allowing the local economy to become properly competitive and create more jobs. That was “fundamental”, she declared.

At the same time, Mallorca’s estate agents are also hoping that the new mood of optimism and stability will make the island even more attractive to bargain-hunting property-buyers – who’ve already been attracted by unprecedented price discounts of 20 per cent and more. Still, investors shouldn’t be unrealistic, advises estate agent, Michael Cunnington of MJC Associates, who partner with UK-based Savills.

“Nobody should expect the sort of massive discounts available in some places on the mainland – it’s just not realistic,” Cunnington told abcMallorca. “We’re fortunate here that we haven’t had the same problems as some of the worst-hit locations, particularly in terms of over-construction – and that’s why our prices have remained comparably resilient.” He added: “And let’s face it – Mallorca is Mallorca!”

But the key to recovery in the property market as a whole, believes Fernando Vizoso at KPMG’s Department of Spanish Infrastructure, will be access for buyers to finance at a reasonable price – something that’s been sorely lacking. “If the banks do not become more realistic and the financing situation does not improve, all we will see will be minor price adjustments in particular market segments – but the overall market will continue to be depressed.”

Vizoso is right, of course. But perhaps, looking at the recent economic growth statistics for Europe’s twin engines, France and especially Germany, there is some cause for a slightly more upbeat assessment. The German economy grew by 1.5 per cent in the first quarter of this year, lifting business activity back over its previous 2008 high just before the collapse of Lehman Brothers – while France gleefully announced a one per cent expansion in GDP, also considerably better than expected.

Given the number of German property-owners who live on Mallorca and who buy property here every year – the good economic news from Berlin is particularly important. German unemployment has fallen to its lowest level in two decades. That fed through into stronger domestic demand in the first quarter – with consumer spending in general increasing “markedly”.

“Calling it a wirtschaftswunder – an economic miracle – may be a bit aggressive, but I expect Germany to outperform for several years,” says Jörg Krämer, chief economist at Commerzbank in Frankfurt. “So yes, I would say it’s possible that this may be a new paradigm.”

The hopeful economic news doesn’t stop there. The United States has also seen economic activity back above its pre-crisis peak. The private sector there created 268,000 jobs in April, well ahead of Wall Street’s forecast of 185,000 – boosting both the Dow Jones Industrial Average and the S&P 500.

And even in Greece, where a €110 billion international bailout last year is running into trouble amid fears of a default or an obligatory restructuring, GDP grew by a very-impressive-in-the-circumstances 0.8 per cent – after contracting sharply for the past four consecutive quarters.

On the other hand, it’s certainly true that the Eurozone growth data underlined once again the EU’s ever more apparent north-south divide. For instance, growth here in Spain remained stubbornly sluggish, with first quarter GDP rising by just 0.3 per cent. In Italy, the picture was even worse at 0.1 per cent. Meanwhile, Portugal’s woes continued – it fell back into recession with growth contracting by a further 0.7 per cent.

Are there dangers to this new-found strength in Germany and France? Of course, there are.
Any recovery must remain delicate for some considerable time. A stronger euro could hit exports; there’s the threat of inflation as a result of a pick-up in wages; while oil prices could continue to climb higher as a result of political tensions in the Middle East.

And the most worrying vista of all: a default by Greece or a decision by Spain that it too needs an EU-IMF bailout after all could have disastrous monetary and political consequences for the euro – and send all of us careering over an economic cliff for the second time in five years.

But in the meantime, it’s summer and Mallorca is looking at its loveliest. That’s good.
Figures also show that Spain is still in the top three most popular holiday and second-home destinations in the world for northern and central Europeans. That’s good too.

And as for Mallorca … well, as Michael Cunnington says: “Let’s face it – Mallorca is 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.