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Follow on Google News | Mallorca Property Market Report March 2010 – What now for Mallorca property prices?A review of the Mallorca property market, price movements and where emerging investment opportunities may arise
By: David Novi BA MPhil MRICS But what does that actually mean and what has the impact been? Firstly we need to look at the terminology – ie I am referring to ”values“ not “asking prices”. Sorry to bore regular readers but if you are you will know I have maintained for some time that there has been in a significant number of cases a decoupling of the fundamental relationship between asking prices and “real underlying property values” (in a normal market one might expect to find a difference of circa 10% but where this goes to 20% – 30% or more the simple conclusion is that owners maintain unrealistic expectations) Secondly we need to look at what is “real value” ie where should prices be? As a rule of thumb values have, in my opinion, fallen by between 25 – 40% or to put it another way fallen back from the peak in 2007 to levels of circa 2004 (dependent on how realistically they had been valued in the first place). Again to put it simply we need to take off all the excessive “froth” generated by the market during the preceding 3 or 4 years to the so called “top” of the market in 2007. Official statistics (see below) seem to suggest that the market still has to adjust further to get back to the levels of circa 2004 which is to some extent correct ie where we are now is that correctly priced properties are at or around the circa 2004 levels while others however remain over priced and will “appear” to fall further. On the other side however it is important to understand that the further you go back with official registered figures the more unrealistic they become because they are artificially low (it was common for properties to be registered at anywhere between 60% – 80% of the real value ie 20% – 40% below actual sales price) while today, if this is done, it is unusual for it to be more than 10% below. The result is that the earlier figures are artificially lower than the comparables today. So if compare actual 2009 prices with 2004 levels, and find an appropriate relationship, something which is a reality in some cases, particularly in the new built property market (developers have generally been more aggressive in cutting their prices be it due to a new sense of realism or simple “desperation / need” – liquidity, interest payments etc), then indeed we can call the bottom of the market in 2009. But is calling the “bottom” of the market the same as saying that the market is in “recovery”? One of the most interesting debates will be when and where future capital growth will come from. Clearly this has a lot to do with the supply side but also the release of new development land and, importantly it’s price. On the mainland, or at least certain areas of the peninsula, there is a huge supply overhang that some argue will take until circa 2016 to clear, leaving very little hope for capital growth in the meantime. In Mallorca and the wider Balearics the supply side has been more constrained due to the relatively more controlled speculative development boom of the early years of this century. Furthermore being a small Island certain segments of the market have and will increasingly have a more restricted supply side – eg front line villas or large rural fincas / country houses, simply because the availability of front line plots is limited and planning regulations on development in rural areas, especially in the Tramontana, have become increasingly restrictive. That said looking at the market as a whole and the values of development land / plots in particular it is clear to see that while developers have reached, in many cases, their limits in bringing down the asking prices of existing stock – they have eroded most if not all their margin in a rush for “liquidity” In conclusion expect: 1.Underlying values to bottom out at current levels 2.The evolution of asking prices to vary dependent upon whether they have been set realistically / adjusted sufficiently to account for the significant falls in property values. 3.Future growth in values to be non existent in the short term and very limited and restricted to underlying inflation in the medium term ie no real growth in the next couple of years. Modest growth over above general inflation levels in the economy to follow thereafter at levels of 1-3% 4.Special properties with “unique” qualities – front line; very good sea views; restrictive planning conditions – rural fincas; high quality developments etc to perform better / out perform the market in the medium / long term. 5.Land values to hold down prices in the medium term as developers take advantage of cheaper land to sell at these new lower levels for the medium term. Long term shortage of supply, save for those in urban areas and for “mid range” apartments, should see values rise My advice: 1.If you are a lifestyle purchaser or investor with an income return bias start to look at the emerging buying opportunities BUT.. 2.“BUYER BEWARE” it is all about value and ensuring that you buy at an appropriate level and don’t over pay on unrealistically priced properties. 3.Look at new build where good discounts are available (but beware of off plan unless your deposit(s) are backed with a bank guarantee) 4.Look at properties with “defensive” 5.Look at land to hold as a long term investment / to build a home. Particularly rural plots, front line or with very good sea views etc # # # Chartered Surveyors and Mallorca property consultants offering private and corporate property acquisition clients a bespoke service including - property and site finding, investment appraisal, independent valuations, & development project management. For news and views regarding the Mallorca Property Market see (http://mallorcapropertymarket.wordpress.com/ End
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