Mallorca Property Sales Autumn 2012 Report

Mallorca’s property market hasn’t and doesn’t look as bleak as mainland Spain. Balearic property prices have increased steadily in the third quarter of 2012 in the Spanish House Price Index report. On average, Balearic house prices are €473k whereas in the mainland it is around €225k.

In order to get the market moving again, VAT has been cut from 8% to 4% on new build property purchases until the end of 2012. The new rate of 10% comes in at the start of 2013 and could have a negative impact on the market once more. Further to this, there is a 50% reduction in Capital Gains Tax from 21% to 10.5% for urban property purchases. These tax discounts are given to all residents and non-residents of Spain but only apply to ‘urban property’ meaning not rural fincas or country houses.

What is causing a stir in the fairly stagnant market is those who are serious about buying are doing so and they’re not hanging around for anyone else to snap up their bargain. According to certain Mallorcan estate agents, the negotiation margin for house prices is on average 11.5%, making now a good time to haggle the price. However, this does depend on the property and you might not get as good as bargain as you’d hope from high-end property whose owners to do need to sell at greatly reduced prices and can ride out the stagnation until prices rise again.

The Mallorcan property market has a lot to thank foreign investors for, as an increase in sales to foreign buyers towards the end of 2011 has seen house prices level off and demand starting to pick back up. Mallorca has always been a popular destination for UK holiday makers with some 60,000 holiday homes owned by Brits. An increase in German, Russian and Scandanavian sales has also helped stir the market with German interest being at it’s strongest for ten years. To further encourage foreign investment, the Spanish Property Developers Association are working with the government top try and make it easier to transfer funds to Spain in order to purchase real estate.

Demand for houses has largely been in new builds as opposed to property re-sales. This raises an issue as many developers ceased construction due to the economic crash and Mallorca's strict planning laws. As a result, supply of new build property is starting to dwindle. Building regulations in Mallorca have prevented the building of high-rise apartments and hotels that can ruin the beautiful scenery of the island. Any large houses being built must be done so on large plots of land to prevent overcrowding.

Due to the lower supply of new builds, prices of re-sale property in Spain have increased for the first time in 24 months. Demand for re-sale properties is largely at houses in the range of €150k-230k in the Balearics with very few buyers looking above this range.

Estate agents are optimistic that houses will and do sell for the right price. An unrealistic view of the property market had pushed house prices up to an unsustainable level back in 2007 which meant the market was hit even harder when the economic crash came. Since the boom in December 2007 the cumulative fall in house prices is 28.6%. According to the National Institute of Statistics who base figures on the House Price Index, prices fell once more in the second quarter of 2012 by 15% compared to last year.

Coastal and beach areas still remain the most popular locations for investors and house prices have not changed too much from what they were in 2010. Inland properties have seen a greater decline in price which has resulted in better sales than previously.