Calling the top on Mallorca luxury market
While in my previous analysis I hinted at the fact that huge price increases in foreigners buyers' local markets could translate into Mallorca dynamics, turbo charged by paper wealth creation and fiscal incentives in a positive economic growth trajectory, now the underlying dynamics are playing at reverse.
Point one: In just a few months rich people (or better people that have greatly beneficiated from asset reflation) are losing a staggering amount of money.
Look at this graph:
Then add two trillions lost from digital currencies, purchasing power eroded by inflation, interest rate increases and a loss of confidence driven by war.
Do you really believe that this isn't going to affect the top range of the market????
I know that recent data about real estate market are still showing large price increases worldwide but looking at hyped markets as California, Miami, Vancouver, Sidney they are the canaries in the coal mine: widening bid ask range, fewer transactions and slashed asking prices.
Residential reits in Europe are crashing as like as listed property developer: please remember that equity markets are forward looking!
Point two: everyone is bullish in Mallorca, only someone talking about price fatigue. This is a reversal indicator.
Point three: since march the number of properties listed at prices higher than 3mln have INCREASED 20%, from 1700 to 2000. Most part of new developments in the island are luxury units.
Point four: luxury properties are damn expensive to mantain and in an environment with positive interest rates and less price appreciation (if not depreciation), to pay wealth taxes and property management isn't a smart choice. Add sky high utilities costs!!!
That's a reason why i think that apartments will mantain a better value than some excessively dimensioned villas.
Point five: I frequently listen to the fact that for a resident in Berlin or Oslo local real estate prices are relatively cheap so there's an incentive to buy in Mallorca.
Wait wait! it's true only for someone that want to sell their properties abroad and relocate on permanent basis, but here's the dominant buyer is a second residence buyer! So if Mallorca is becoming expensive it's becoming expensive in absolute terms!!!!
To draw a conclusion, I think that we are going to see a decent down trend in the top end of Mallorca market, extending also across the entire spectrum, lasting for at least a year, with negative price dynamics and increasing supply. It's a slow motion process that wil accelerate quickly.
I like to play as contrarian and I honestly I welcome feedback.