Mallorca Property Prices Continue Downward Trend
Novi Property Mallorca
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The decline in value of Mallorca property steepened again in December 2008 reaching a year on year figure of -9% compared with -8.4% in November, -5.4 in October and -4.4% in September, according to the latest monthly report from Tinsa, one of Spain's leading property valuers.
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This is the 7th successive month that prices have declined in the Balearics according to Tinsa. Interestingly the same report identifies much heavier "losses" on the mainland Mediterranean coast, a fall of 14.3% in December, a decline that has been on going since February ie 11 months.
Novi Property Mallorca Comment:
What can we read into these figures and how do they compare with what appears to be happening on the ground? Firstly it is important to note that the traditional valuation approach in Spain is to use, as evidence, the values of comparable properties that are being offered "on the market" not actual sales transactions. While this is a simple product of the lack of reliable information on real sale prices* it is a real issue that needs to be considered by Buyers and their representatives (*Note. most are distorted by the tax evasion practice of registered sale prices excluding a cash element paid "under the table" by purchasers to the vendor, something that has the real problem of disguising what is really happening in the market).
Owners and estate agents rarely act in line with the real market, holding out for higher prices long after a market has turned (especially when it turns down). The likelihood is that if "asking prices" are falling, real values fell sometime before. In the case of Mallorca we believe the market turned, at the very latest, in late summer of 2007 (some top end properties may have been a little more resilient) and any subsequent increases in asking prices were the consequence of owners and estate agents failing to come to grips with the simple fact that Spanish and Mallorca property prices can actually fall! Until then if a property did not sell owners and Agents simply increased it's price every few months, or at least at the end of the year, to reflect "the increase in values of property" during the preceding period - ie they were indexed linked like a State employees salary!!!
Extending this argument, it is thus likely that owners and estate agents are still not reflecting the realities of the market, ie have not fully adjusted down their price expectations, and thus "real nominal price falls" are much higher. "If you would want me to pull a figure out of the air", says Novi Property Mallorca's David Novi "I would double it and say values, generally in the Mallorca market, have already fallen between 15% and 20%, and since the market turned in mid - late 2007"
In relation to the levels of price falls in the different areas of Spain, and in particular comparing the decline of 14% on the Spanish Mainland coast with the 9% in the Balearic Islands (ie is it reasonable to concur that values are falling more on the Mainland than in Mallorca), it is likely that here the statistics don't lie and rather reflect the market fundamentals of the two regions. The mainland market was, as we have highlighted on many occasions, dominated by a much greater levels of speculative low - mid level price residential development driven by an equally speculative demand from investors. In Mallorca, while the construction boom was not exactly "controlled", it was on a much more reduced scale and the demand side was driven by real underlying fundamentals - population and household number growth and second home purchasers motivated by lifestyle reasons rather than financial.
These fundamentals are likely to help the Mallorca market withstand the current crisis better than other areas with "top to bottom" falls of around 30%, in the market generally, rather than an anticipated 40 - 50% in some of the worst affected areas of the mainland.
For buyers the key question is when to come into the market. David Novi believes 2009 could be a good time even if prices generally are still weakening. "Clients often ask for my advice on where they can find the best deals, hoping we will produce a list of properties with bargain level prices, many of which are distressed sales from repossessions etc. In reality while there are one or two examples of such properties, the real opportunities are hidden behind the still artificially high asking prices of many (but not all) properties on the market. What we see is that the real bargains are only discovered once offers are made and detailed negotiations undertaken. Suddenly a property that looked at best "reasonably priced" has become good value, as we have been able to negotiate a major price reduction for the purchaser. The bottom line is don't expect to see asking prices reflect underlying value, at least from a general point of view but there are always exceptions!
Perhaps we are biased (!!), but as Chartered Surveyors and valuers, and above all agents for Buyers rather than Estate Agents acting as brokers between owners and purchasers, we believe we are able to offer clients not only the market and professional expertise, but also the independence and impartiality to help buyers identify and buy at the best possible price.
"In a rising market you could always make a mistake and over pay without getting your fingers burnt" concludes David, "the market keeps rising and any error is soon eroded and the buyer is left sitting on a profit (all be it a paper one!). When a market is falling, and even more relevantly in one where the buying costs are quite high (ie 10%), an overpayment of say 10 - 15% will leave the buyer with a "deficit of 20 - 25% (ie after adding in the costs of purchase) that will need to be recovered via future market growth, if a subsequent sale isn't going to result in a loss. Since future growth levels, at least in the medium term, are likely to be much more modest - say 3-5% per annum and even those won't probably start until 2012, it is easy to see how long someone would have to wait before the "error" is corrected. While pure investment motivations are rarely the driving force behind our clients purchases, they do want to limit the downside risks, something we believe we can assist them with through our market and valuation expertise"
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