I can’t remember how many times I have heard the “I will wait for prices to plummet” line and wanted to shout “wake up and smell the coffee”. Unless the current financial crisis reverberating around the globe becomes a long-lasting downturn then don’t expect real estate prices to to drop in Majorca. In truth, whereas mainland Spain is suffering a crisis, the Balearics and Barcelona were the only two Spanish regions to have price increases in 2007. There is just not a surplus of sought after property here in Mallorca as there is on the mainland.
It is true, prices have levelled out over the last two months and, the local Spanish and Resident market is completely flat. Yes, the international financial turmoil, to coin a phrase coming out the UK does have some effect here. Low interest rates from a few years ago have disappeared and the current starting rates of around 5.5% give or take can be felt in the pocket. However borrowing costs are in the Euro zone cheaper than in the UK, where many buyers are form.
So, British buyers get less for their Pound. True, and this will effect the overall budget, that said, most buyers have a certain margin in their budget so this extra cost is all but negligible or realign the requirements to the current budget, it does not stop them from buying. Add to that the fact that many investors now have euro accounts anyway and the plethora of commercial forex companies to choose from helps take the sting out of the tail.
So what keeps prices so high? It is the nature of the properties in Mallorca and the owners that defies the logic of the standard market trend. A significant amount of the real estate in Majorca are are often unoccupied. Extravagances of the affluent and even the not so rich but certainly well off. Lets face it, not anybody has the disposable income needed for the 100.000 euro price tag to buy a Studio apartment in Palma Nova. On top of this, it is money spent on a holiday apartment and you see the profile of the person we are talking about. Then think about the type of person who has the 450.000 euro minimum you would need to buy a 3 bedroom Luxury Chalet near the expanding Puerto Adriano marina. And since we’re on the subject what about the Villas. Have you got a cool 3.000.000 euros spare for a holiday home?
And that is the profile of the real estate owner / vendor of a large chunk of the properties Majorca. Almost regardless (and I stress almost as, of course, there will be individual cases where this is not true) of the crisis’s around the world economies, such people have no underlying urge to drop their price. There is no excellent career opportunity in Cheshire from where you are. There is no “sought after school” in the next county, there are no buyer ladders from first time buyers to ‘want to keep up with the Jones” to ‘the kids have all moved out’ to retirees. People buy a place in Mallorca because it is a jewel in the Mediterranean, it is charming, it is a select choice – even Lloyd Webber has a house here! They have property here because it is a luxury and they can afford it.
Add to that this fact, it cost them 10% on top of the sales price to buy it in the first place and its going to cost them 18% of the profit when they sell it. Nobody wants to sell at a loss, especially not with real estate and certainly not with luxury real estate.
Those are the reasons for the stable prices here in Mallorca: the fact the property prices are largely based on luxury investment properties, there is no underlying need to sell, the cost of buying and selling taken into account in the whole equation and simple supply and demand – I have a chalet on the golf course, you want to buy it and this is the price.
