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Prices Are Back At 2000 Levels But is the Window Closing

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April 1, 2010

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There comes a point in the decline of every overheated property market where prices drop to a level at which they’re once again too attractive for investors to miss and Spring 2010 could well bring that tipping point for Mallorca.

Not that the market here was ever overheated to anything like the extent of the infamous Costas. But the fact is that, as revealed in our last issue, the average constructed cost of property was just 847 a square metre in 1999 whereas in booming 2006 it broke the 2,000 mark with ease. And that’s just the average.

However, boom and bust are the nature of economic cycles. And so, thanks to the single most frightening downturn since the Great Depression, Mallorca property prices have fallen back and back, all the way to around 2000 levels, depending on the property.

Some clients are willing to reduce their prices to sell, and so we’re now advising them to make a 20 percent cut because 10 percent simply wasn’t making an impact, Michael Cunnington of MJC Associates, who work with Savills, told abcMallorca.

And because it’s such a tough market, we also warn them that the offers they get are likely to be another 10 to 20 percent below the asking price which can be quite a bitter pill to swallow.

A bitter pill it may be, but just look at the context as portrayed by the Instituto Nacional de Estadistica (INE) in its end-of-year review, which found that:

  • Year-on-year the Spanish property market shrank by a whopping 27 percent in transaction volume terms during 2009
  • It had 372,000 transactions a 48 percent fall when compared with 2007, which had 715,000 sales
  • In December 2009, there were just 28,669 transactions ? the second-lowest level of monthly sales on record

And yet, insofar as there is good news, it’s that the rate of decline is slowing, according to the latest figures from the Spanish property price index, TINSA.

Those statistics also tell us that between the ma’rket peak in 2006 and the present a period of just four years or so, don’t forget ? prices are down an average of 15 percent nationally, 14.9 percent in the cities and provincial capitals, 20.4 percent on the Mediterranean coast, and 13.8 percent on the islands, including the Balearics. Ouch!

So now is the time for value investors to use Warren Buffett’s famous description of his own investment mindset to take advantage of perhaps never-to-be-repeated prices. And with luxury three-bedroom apartments that previously cost 850,000 now on the market for 690,000 and others that used to cost around 600,000 now sporting a price tag around 450,000, there’s no doubt about the value to be had.

I believe the majority of our clients understand very well the value that’s to be had on Mallorca at the moment, after a drop in prices of around 30 percent on average, says Andreas Dinges, Managing Director of Personal Property Mallorca, which is showing its confidence in the market by opening a new, larger, office in Puerto Portals around now.

On the other hand, we also try to make them understand that prices on Mallorca never plunged in the way that they did on mainland Spain and that in our view that?s it ? we do not expect property prices to drop any more.

While Andreas Dingess clients are generally German or German-speaking, Jacqui Nash at Nash Homes deals mainly with British clients and that, she says, has been a huge benefit despite the fact that the euro weakened somewhat as a result of fears caused by Greece’s debt problems.

British owners can afford to accept a price up to 30 percent lower, they make up the difference when they convert back into sterling?, Nash told abcMallorca. Indeed some accept prices lower than they paid for the property.

We see it, for example, with properties we have for sale at the exclusive Sa Vinya development between Bendinat and Illetas. British owners are often willing to accept considerably less than the published price of €595,000 for a standard two-bed apartment. On the other hand, German and Spanish owners in the same development are typically less willing to do the same ? because they can?t benefit from the euro-sterling exchange rate.

And that’s where foreign-exchange specialists, Moneycorp, can often make a substantial difference in a world where banking transactions are increasingly costly.

Apart from the usual foreign-exchange service which allows clients to book forward contracts at agreed exchange rates up to two years in advance, they also offer a new service in co-operation with Solbank for British clients repatriating to the UK.

Moneycorp Regional Manager, Norman Marks, gives an example of British clients who’ve sold their property and want to repatriate a very average €200,000

Firstly the Spanish banks will charge around one percent commission to send the money back, which is €2,000. You’ll also get a rate of exchange inferior to ours by between one-and-a-half and three cents, so if it’s by one cent that’s another €2,000. And they’ll charge €300 or €400 to clear the banker’s draft.

Whereas with Moneycorp, we charge €100 to clear the draft, €175 to send the money back, and with our preferential exchange rate, that’s all you pay. That’s €275 as against €4,500 for the same transaction. So we save clients literally thousands of euros.”

Whatever the cost of doing the deals, how long will the exceptional property value last on Mallorca? Seasoned market watcher, Andrew Spence of developers, Bendinat, agrees with Andreas Dinges that the window of opportunity may close quicker than many investors think.

Potential buyers need to realise that unlike the mainland, where oversupply and unsustainable growth have left a hangover which may take years to clear, Mallorca is a quality market with a limited supply of property.

On top of that, it’s desirable, a wonderful place to live. After 20 years here I never tire of the island’s natural beauty and the many sunny mornings we enjoy here while northern Europe struggles with cold and snow!


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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.