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Coolest Homes in the Med still … Made in Mallorca!

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October 1, 2009


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It’s been a tough two years, but the good news this autumn is that property markets that have survived intact are set to emerge from the global recession with their brands stronger than ever. So the tag investors heading for the Mediterranean will be looking for is: Made in Mallorca!

But are we really over the worst? Just as nobody wanted to call the top of the global property boom – even when it was apparent that prices had reached unsustainable levels and the bubble would inevitably burst – now very few are brave enough to call the bottom either.

Michael Cunnington of MJC Associates, which works with Savills, is among the exceptions: maintaining that not alone has the Mallorca market bottomed out, but that prices here are already starting to recover – bucking the national trend, and not for the first time.

“Prices on Mallorca are definitely starting to creep up again”, Cunnington told abcMallorca. “National statistics show that prices on mainland Spain are still falling – in contrast to re-sale prices in the Balearics, which increased by 1.1 percent during the second quarter of 2009 alone.”

While he admits that we would do well perhaps, to take these latest statistics with the tiniest pinch of salt, he says that they’re encouraging news nonetheless. “Needless to say, nobody quite knows how these figures break down – but they certainly help to revive something of a feel-good factor.” On the international scene, however, there are some indications that the worst may indeed be over – so let’s have a look at the key markets…

In the all-important United States, for instance, The Blue Chip Economic Indicators survey, which since 1976 has polled America’s top business economists, declared in August that the worst US recession since the Great Depression will probably end in the third quarter of this year.

The survey showed that nearly two-thirds of respondents believed the US economy – which has officially been in recession since December 2007 – was set for a U-shaped recovery marked by below-trend growth in GDP, before stronger growth would take hold in the second half of 2010.

“Debate now centres on the speed, strength and durability of the recovery”, the survey said.

At the same time, the latest figures from the US Commerce Department show that new-home construction rose 3.6 percent during June to the highest level in seven months – the second month in a row that housing starts have risen following a post-WWII low in April.

“These figures look like a genuine upward surprise”, said Dean Maki of Barclays Capital, “and tend to support our view that housing construction activity has already bottomed out …”

Then on to the UK. Here once again, latest figures from the Home Builders’ Federation (HBF) were reported by the BBC as showing “the first signs of an upturn in the housing market since 2006.” The HBF’s optimism is based on a survey of its own members – who include most of Britain’s major home builders – which found that 60 percent of those questioned had experienced some increase in sales compared to the same time last year. HBF spokesman, Steve Turner, said that after an appalling 12 months during which around 250,000 construction jobs had been lost, the survey results were a welcome boost – adding that the biggest hurdle to recovery remained the unavailability of mortgages.

Even in Germany, where the property market has never been subject to the extreme peaks and troughs we associate with the US, the UK and Spain, the latest King Sturge Real Estate Economy Index shows confidence increasing but, again, lack of finance still the key problem.

“Although the basic sentiment is positive”, observes Sascha Hettrich, Managing Partner of King Sturge Deutschland, “there’s still scepticism about the pace of recovery because of the sustained restrictive lending policy of banks, especially in regard to larger volume deals.”

As we reported in the last issue of abcMallorca, the problem in Spain is not so much restarting the construction sector as selling the enormous glut of more than a million unsold new properties, almost half of which litter the mainland’s coastline.

Now that problem has finally been acknowledged by the so-called G-14 group of Spain’s largest developers, whose President, Pedro Perez, told the country’s highest- circulation daily newspaper, El Pais, recently: “Without a doubt, the second-home market is suffering the biggest fall in sales. It’s logical. The first thing people can do without when they get into difficulty is a holiday home.”

Happily, for most people here on Mallorca, however, a holiday home is still a highly desirable accessory – rather than a financial millstone. “It would be foolish to pretend that we’re back to the boom times or anything like them”, says Michael Cunnington, “but fortunately there are clients around – and some of them are serious shoppers.”

Terence Panton, Managing Partner of Engel & Völkers in Palma, agrees – and, interestingly, traces the first halting signs of a pick-up right back to the early days of 2009.

“Since January, real estate activity has gradually evolved more positively, with some sales to Swiss, German, Russian and Scandinavian clients”, Panton told abcMallorca. “The main vendors tend to be local owners or foreigners who need to sell, and, in fact, British vendors can actually find that the market is very competitive when they convert euros back into pounds sterling.”

Eric Lacabarats of developers, EsPacio, says the one thing these new clients have in common is that they’re cash-rich. “These buyers are wealthy people”, he says simply. “They’re pulling their money out of the banks and putting it into high-end real estate. It’s a sure bet. Location and good quality will always sell, so Palma and Andratx are still the first choice.”

Andrew Spence of developers, Bendinat, agrees that there’s a flight to Made-in-Mallorca quality. “If your property isn’t in a prime location, it will be hard to sell this year. But if it’s the perfect home, in the perfect location, with perfect sea views – given time, it will find the perfect buyer.”

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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.