Properties in Mallorca. Recovery from credit crunch and recession ...

Sept. 6, 2009 - PRLog -- This summer has been more busy than many expected in the Mallorca property market. This is relative to the latter part of last year of course when property markets across the globe practically froze, so the level of sales is a way off pre-recession heights. Over the summer months however sales activity has picked up noticeably.

Why should Mallorca be ahead of other property markets?

There are many sound reasons why this should be the case. Beyond the Mediterranean climate, stunning coastal scenery and beaches, Mallorca is an exclusive location with an excellent infrastructure and international travel connections. It offers great variety from places of chic sophistication such as Puerto Andratx and Portixol, to old towns such as Soller and Pollensa and authentic country market towns such as Sineu and Santa Maria. Furthermore it is an island, safe from the growing levels of crime seen in some mainland Mediterranean locations.

In terms of property Mallorca has something for most tastes and requirements, from beautiful country houses to sea-front coastal villas and some of the best community townhouses and apartments available.

Underlying this, and fundamental to Mallorca's lead position in the recovery of property markets across Europe, is the fact that the supply of property has been held properly in-check with planning regulations being rigorously enforced. The over-development seen on the Spanish mainland is not apparent in Mallorca and is unlikely to become so in the future.

How strong will this recovery be?

Any talk of recovery should be put properly into context. As noted above, sales are still at a relatively low level when compared to the height of the market. Ongoing recovery will depend on how the global recession pans out from here-on. At this time it is by no means certain that the recession is over or what type of recovery will take place. Some say it will be a "W" shape meaning there will be further months of recession ahead. A more commonly promoted view is that the economic recovery will be an "L" shape, with things bottoming out during the rest of 2009 followed by a slow and drawn-out recovery over the coming years.

The OECD's (Organisation for Economic Co-operation and Development) latest assessment forecasts that a recovery in the world’s economy now looks likely to come earlier than had been expected, but the return to normal conditions is likely to be slow and protracted.

The ECB (European Central Bank) is currently mapping out a withdrawal plan from the extraordinary fiscal measures put in place to counter the credit crunch and recession. But for now it is keeping these measures in place including carrying forward its record-low 1% interest rate. ECB President Jean-Claude Trichet said there is still economic uncertainty ahead and forecasts only a "very gradual recovery".

What seems fairly certain is that the recovery will not be a "V" shape. I.e. there will be no immediate rebound back to the levels of productivity and personal financial flexibility that were evident before the recession. So there seems little scope for any property market to rebound quickly in the same fashion. Furthermore there are still powerful forces depressing property markets and these are likely to remain for quite some time.

- Mortgages are still more difficult to obtain than before. The Spanish and UK banks are seldom likely to lend more than 60% or 70% of a property's value, the criteria applied to obtaining mortgages at any level are stricter and the process takes longer. In this respect the credit crunch may have eased a little but in practice is still very much in evidence.

- Unemployment in the UK is high and set to increase further. Official figures for June of this year showed a level of 7.8%. The true figure is undoubtedly higher. In Spain the rate is now a staggering 18%, again according to official figures.

- People are concerned that taxes will have to increase significantly to pay for the economic stimulus that was put in place to counteract the recession. They are generally being more conservative in their spending and showing a reluctance to borrow. Concerns of imminent tax rises can only serve to compound this.

So what does this all mean for properties in Mallorca over the next year or so?

The view of Mallorca Property Partners (http://www.mallorcapropertypartners.com) is that the island is already showing itself to be at the forefront of any recovery in the international property markets, and that this recovery is most likely to mirror the global economy as a whole and follow a sort of "L" shape as described.

This means the market will continue to improve, but slowly, as there will continue to be relatively fewer active buyers in the market for some time to come. Many people who would have been prospective buyers will simply not be in a position to consider buying a holiday home. Others will continue to be too wary to make such a commitment until the economic environment is tangibly more positive.

Seasonal factors will continue to have their usual effect too, which means we might see a slackening off in this new demand over the winter months.

The buyers that are active in the market will tend to be mid-market and up-market buyers focussed on good quality properties in the prime locations. It follows that competition for these prime properties will increase faster than for lesser properties in non-prime locations.

This will reflect in the sale prices achieved as property owners in the prime locations will be less likely to negotiate substantial price drops. The more confidence returns to the market the more owners will resist discounting their assets and this trend will become apparent more quickly in the more sought-after areas. This evolution will be a gradual one though and the market conditions will continue to favour buyers for some time to come.

Further advice from Mallorca Property Partners is for those considering buying to take a step back from the focus on percentage price reductions and to focus instead on a realistic assessment of the price relative to other comparable properties. And they should seek good advice on location choice too.

In reality the best "deals" are the properties that will go on to appreciate the most. A 30% off deal on a property in a non-prime area sounds attractive, but if it languishes at the same price level for years after all you have really done is find its realistic price-point. Conversely, if you pay the asking price for a property in a prime location and it increases in value by a small amount in 2010, you have an appreciating asset that should go from strength-to-strength. The latter is a smarter investment than the former!

For more information on Mallorca Property Partners' specialist search and advisory services please see : http://www.mallorcapropertypartners.com/mallorca-property...

For more details on some of the best properties currently available in Mallorca see : http://www.mallorcapropertypartners.com/blog.

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Mallorca Property Partners is the longest-established property finder service in Mallorca. We cover all of the prime areas and all types of properties as well as offering a comprehensively range of supporting services throughout your search and purchase.