Alastair Kinloch from Property Works gives his views on the property market in the Balearics for 2021
Pre Covid Conditions
In our opinion, the fundamentals of the Balearic market remain somewhat more robust than many of the Spanish mainland areas, such as many coastal regions on the mainland. As a result of some historic planning restrictions and a more limited supply of available land, Mallorca, Ibiza and Menorca has not suffered the same level of speculative development as the mainland.
On the demand side, the Islands are not the subject of such high interest from speculative investors, with much demand (aside from that generated locally) coming from “lifestyle” purchasers seeking either new primary or secondary holiday residences.
Various factors continued to draw purchases including its excellent airport within three hours of most European destinations, 14 international schools, relative political and economic stability, outstanding landscapes and beaches and good housing stock.
The property market is split between properties in demand by overseas investors and those that are not. The later might be, for example, lower value village or town apartments. These remain more depressed for many reasons, including local unemployment, stricter lending and low local wages. The upper end of the market remained popular with above average investment from Germany, UK, Sweden, France and Denmark and non-EU investment from China, Russia and the Middle-East.
Units in demand are usually high quality apartments and detached dwellings with “premium” characteristics such as sea views and large gardens with facilities in prime locations.
Lending had also improved with Spanish banks now offering many more mortgage products, albeit with stricter lending conditions.
Post 2020 lockdown conditions and looking to 2021
Now Britain has left the EU and we are about to enter the second year of Covid restrictions, agents have commented that enquiries have remained at a steady flow and at present, prices have yet to fall. 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. Others are now following the worldwide general trend of moving out of the cities and looking for properties with outdoor space.
With so much uncertainty short term,
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.
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
• All the usual Spanish market problems like unprofessionalism and the lack of transparency
• Brexit undermining British demand
• Less, more expensive flights
• Less demand due to difficulties in viewing
In our opinion, we do not foresee a 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 the 2009 recession, it will affect the wider market much more than the luxury market, where this property clearly sits. House prices in the previous recession (2009) took approximately ten years to recover and an assumption might be to predict a similar pattern may follow.