subject: Mallorca Property Prices – A question and answer session reviewing the Mallorca Property Market [print this page] Mallorca Property Prices A question and answer session reviewing the Mallorca Property Market
In this latest review of the Mallorca residential real estate market, David Novi,an experienced Chartered Surveyor and Mallorca property market expert gives his opinion on the various key questions owners and purchasers of Mallorca property mayhave as they look forward to 2011.
Have Mallorca property prices fallen or is Mallorca different to other areas and countries?
Yes! The official statistics from the Ministry of Housing and those produced by the large valuation company's like Tinsaallshow that since the peak in the market in 2007 prices have fallen by around 10 16%, depending on which statistics you look at. Generally this is somewhat less than some of the worst effected coastal areas on the Spanish Mainland such as the Costa del Sol and Costa Blanca.
But I hear that these official statstics are unreliable and some commentators suggest that the market has fallen further. Is that the case?
In my opinion the answer to both questions isyes. We can look at the reasons why the statistics may throw up erroneous figures or not but ultimately in my experience, and from the anecdotal evidence of others operating in the market, those properties that sell show discounts of between 25% and 40% on their original asking prices (if they have been on the market since the peak of the market) or on the sort of values that were being asked and paid at the peak.
But isthe marketcoming back to lifewithpropertiesbeginning tosell?
Yes things are selling but there are too many fundamental problems with the market,in terms of all the economic variables effectingboth demand and supply, to say that the "market is coming back to life". Local demand is muted due to unemployment levels, lack of consumer confidence and lack of mortgage finance. Demand from international buyers is returning but buyers remain few and far between,are very cautious, and those from the UK still hampered by the weak Pound. On the supply side their is a situation of stagnation too many old over priced properties clogging up the marketand a lack of new properties coming to the market with an appropriate price tag.
You have said repeatedly over the last 18-24 months that properties are over priced. Why is this?
There are reasons why the Spanish property market does not react as quicklyina downturn, compared to others such as the USA or UK markets, not least because there are so may people who simply don't need to sell (most Spaniards own their home without a mortgage and are able to "sit tight" when things get tough); equally they don't "get on their bike" (thank you Norman Tebbit for that little gem, and how right he was!!) ie they will not move to where the jobs are! The bottom line is that the attitude"if I sell I sell and if Idon't I don't" prevails leaving the market full of overpriced unsellable properties.
Will that dynamic change?
There are only 2 options open to vendors, reduce an asking price / personal expectation of value and sell or don't have the courage and foresight to do that and don't sell! Even just in my experience, as a relatively small niche operator in the market, I can give you numerous examples of properties that are falling in price (ie owners are reducing their asking price)but each time they are lagging what is really happening to the underlying values atany particulartime ie the properties are always remaining over priced or at least "toppish"! Just to make something very clear properties with a "toppish" price do not sell in a falling market!
What does that mean for these owners?
First and foremost they do not sell, or at least do not sell until their approach changes. Secondly they are potentially losing tens or even hundreds of thousands of euros adopting this approach. Let me give you a simple example. A property is worth 400,000 but the owner puts an asking price of 500,000 and tells the estate agent(s) he/ she wants 450,000. The owner receives an offer of 400,000 which he rejects. At the end of the year the agent persuades the owner to reduce the asking price to 450,000 "negotiable" and he instructs the agent thathe will accept now 400,000 . The underlying value of the property is however now 360,000 (down by 10%)and thus unsurprisingly the next offer made is 360,000 which again the owner rejects. At the end of the yearthe cycle starts again with the asking price coming down to 400,000 (again "negotiable") and the underlying value also downby 10% to 324,000.
What has happened? Firstly the owner ends up with an "asking price" that is the same as the original value and the original offer that he rejected. The propertydoesn't sell or it it does it will be because the owner has "bowed to the power of the market" (no one has everbeaten the market just ask Greece and Ireland!!)and sells at 324,000, a whopping 76,000less than the original offer!
A positive note: That said although the poor owner seems to have made a right mess of things, salvation is at hand! That very same market that seemed to have dealt the nastiest of blows now comes back to help and offers opportunities to reinvest the sales proceedsin properties that the owner wanted but at much reduced prices! Obviously if the owner does not want to reinvestthen the story doesn't end so positively! ie sell low (or I would say realistically) and thenbuy / reinvstlow and in that way you have not lost anythying!
Sounds simple, get owners to be realistic with their price expectations and "bingo" the market will reactivateand properties will sell!Is it like that?
Yes and no! Firstly there needs to be a general consensus amongst more than just a few "brave and realistic" owners if the dynamic is to change and at this moment in time I think that is very unlikely. The market data does not help. The fact that the official statistics lag the market requires that owners take a leap of faith which most people findvery hard to do.Staying with the supply side the other problem for the "realistic" owner / vendor (yes they will be "vendors" while the others will remain "owners"!)is that once he has the money in his pocket the choice of properties, that are realistically priced, is small and he may therefore find it difficult to reinvest! (finding well priced properties is not that difficult at the moment, but what is, is finding well priced properties that meet exactly whata buyer is looking for- location, size, type etc)
So what is your recommendation to an owner if they want to become a "vendor"?
It is hard to generalise, as each owner is different but if they want to sell they need to understand whatis the real underlying value of their house and that needs to be based on what people are selling their properties for in Mallorca, not what people are asking!That isn't easy as getting actual sales figures is hard enough and given transaction volumes are low getting figures for comparable properties is even harder. The alternative is getting a competent valuer and / or estate agent to help.As a rule of thumb (but no more) the price will probably be somewhere between 25% 40% below what the property was "worth" at the peak of the market or what it was worth in around 2004. The askingprice will needto leaveroom to negotiate, as no one will pay an asking price in this market.
In relation to reinvestment they need to be patient and do good market research. There are some very well priced properties out there but they are still the minority and sometimes they need "unearthing". Even then the right opportunity may not appear until more owners adopt the realistic stance that they have had. More and more are (some through their own choice others due to necessity!)so it will happen and more buying opportunities will emerge.
And buyers? What should they do?
The same as I have just said in relation to reinvestment by vendors. Patience and market research. Every day I see more and more well priced properties throughout the Island, so real buying opportunities exist but, as I have said above, it may take time to find the buying opportunity that meets exactly what you are looking for.
But if prices are still falling should I not wait before I buy?
Yes if you want to buy one of the over priced properties but no if you want to buy one of the appropriately priced ones! Make one thing very clear, buying one of the over priced properties will be an expensive mistake! In reality very few people are making mistakes as the over priced properties just aren't selling! Although the official data and the general perspective in the market may be one of ongoing price falls over the next 12-18 months that will be becausesome asking prices will adjust down and the simple fact that the data lags the real market. Where people buy well there should be little downside risk ie further falls in the underlying value of that property. (note: seemy October Mallorca Property Market Report for those properties that are likely to perform best / be better long term buys)
For further information or details of how David can provide a personalised approach to finding and buying a property in Mallorca contact him at Novi Property Mallorca
Other resources
Property for sale in Mallorca see http://www.novipropertymallorca.com
Mallorca property see http://www.propertiesinternationalmallorca.com
