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Inflated house prices lead to fall in sales in Mallorca

featured in News & reviews Author Nicola Henderson, Site Editor Updated

The latest figures from the Balearic government show that the number of property sales in the Balearics fell by 17% in 2011 to 8,112 sales. This compares to 9,784 sales that were recorded in 2010, and 20,498 sales in the boom year of 2007. And in another report released a few days ago by Spain’s largest online property portal idealista.com, it was found that there is a great disparity in the price that buyers are willing to pay, and the price that a vendor expects.

In the Balearics, house hunters are offering an average of 27% below the asking price. Local agents in Majorca are reporting that home-owners are placing their properties on the market at unrealistic prices given the market crash and the current economic climate. Many home-owners are unwilling to lower the price and are prepared to wait until the market recovers sufficiently for them to recoup their original outlay. This has lead to fewer homes being sold and market stagnation.

Of course, this lack of supply particularly at the top-end means that luxury villas in Mallorca's popular coastal right areas continue to sell well at prices close to 2010 levels. On the flip side, properties outside the most desirable locations have struggled to sell even at discounted prices.

The fall in property transactions is particularly worrying for the government as the revenue it receives through property sales is a major source of income. It is expected that the property market in Majorca will remain steady in 2012 as the government continues to tackle it’s debt. Tax cuts to stimulate the property market include halving the VAT payable on new builds from 8% to 4%. This reduction will remain in place for the whole of 2012. However, the government also announced in January that the annual local property tax (the IBI) will be increased this year. It is likely to affect homes mainly in the top price bracket, with an expected increase of around 10%.

Read more in Buying Property in Mallorca.