Alastair Kinloch from Property Works Mallorca gives his views on the property market in the Balearics for 2021.
He starts with a general historic picture of the Balearic property market and then goes on to look at how things are shaping up for 2021.
Pre Covid Conditions – The basics of the Balearic Market
In our opinion, the fundamentals of the Balearic market remain somewhat more robust than many of the Spanish mainland areas, as a result of some historic planning restrictions and a more limited supply of available land. Mallorca, Ibiza and Menorca have not suffered the same level of speculative development as the mainland. Much of the demand (aside from that generated locally) coming from “lifestyle” purchasers seeking either a new principal residence or a secondary holiday home.
Various factors continued to draw purchases including the excellent airports within three hours of most European destinations, varied international schools, relative political and economic stability, outstanding landscapes and beaches and good housing stock.
When trying to understand the Balearic Market, it is essential to recognize it is made up of two distinct segments. It is split between properties in demand by overseas investors and those that are not.
The first group includes high-quality apartments and detached dwellings with “premium” characteristics such as sea views and large gardens with facilities in prime locations. These properties remain popular with investors from Germany, UK, Sweden, France, and Denmark and non-EU investment from China, Russia, and the Middle-East. Currently, these make up a large percentage of year-on-year transactions.
At the other end of the spectrum. there are lower value village or urban apartments. Sales remain depressed for many reasons, including local unemployment, stricter lending, and low local wages.
Looking to 2021 and beyond
There are clearly three fairly obvious principal ingredients to the current dismal situation – Covid, Brexit, and Economic Hardship. Some might say a perfect storm. So is the outlook as bleak as it appears?
On the demand side, some agents have commented that enquiries have remained at a steady flow, and at present, prices have yet to fall. Some sales have occurred, but in our opinion, these are mostly previously stalled deals and “lifestylers” (retirees/immigrants/2nd homers) happy to make a purchase with less regard to value and the usual due diligence process, etc. Other purchasers are now following the worldwide general trend of moving out of the cities and looking for properties with outdoor space.
Physical limitations such as travel restrictions are obviously holding buyers back, even with the improvements in agents’ online virtual tours.
It is also difficult to ignore the economic effects of Covid, with the likely scenario of less disposable income affecting purchasers’ ability to buy second homes.
On the supply side, it appears more properties are being put up for sale due to the owners’ economic hardship. It is perfectly normal for second homes to be sold when economic prudence is needed.
We also believe other homeowners who run holiday rental businesses may decide to sell due to a disastrous 2020. It is estimated that around 500,000 tourists have been lost to date as a result of the health crisis.
December year-on-year registered sales in the Balearics, according to the college of Notaries is down 31.2%, the highest fall in Spain. For balance, it should be noted that this is accentuated by relatively robust sales during the winter of 2019.
Brexit as a factor is unclear and appears to be less of an issue than Covid. According to Mark Stucklin’s excellent website, Spanish Property Insight, although the number of transactions is significantly down (to 2nd Q 2020), the market share of ownership remains constant. This leads us to believe the increased bureaucracy has had no serious impact at this stage.
Saying that, a price drop in our opinion, is inevitably going to occur due to:
• Weakness in the global economy
• Spanish economic growth running out of steam, with unemployment rising
• High transaction costs
• Usual Spanish market problems such as lack of transparency, bureaucracy etc.
• Brexit undermining British demand
• Less, more expensive flights
• Less demand due to difficulties in viewing
In our opinion, we do not foresee a significant crash in sales values, but a possible period of continued weakness with a fall in investors’ confidence. It is anticipated that the general property market, within the national and international economic context, will remain relatively flat over the next few months and a steady decline will occur over the next few years.
The extent of this decline is difficult to assess at this stage, but if the potential recession is similar to 2009, it will affect the wider market much more than the luxury market. House prices in the 2009 recession took approximately ten years to recover and an assumption might be to predict a similar pattern may follow.
Some may argue that the Balearic market has been overpriced for too long and a readjustment is necessary allowing local first-time buyers into the property market without having to raise significant deposits or debt.
What is clear is that, in time, those in a position to buy may be able to pick up a decent property at a more reasonable rate than we have seen in recent years.