Updated: Nov 27, 2020
Some news report that in the beautiful Mallorca neither a pandemic and a GDP collapse of more than 20% can derail the upward price trend of the local real estate housing market, but is it really so? Recent price reports showed modest price increase YoY(+0.2%), driven by newest properties with an increase of 3.2%. These statistics are updated to the second quarter 2020, while 3Q data need to be published and the entire year to cope with a second lockdown and recent good news about a vaccine ready for next year.
I'm always skeptical about some newspaper titles and analysis, often derived by real estate brokers or portals, where the average is often so different by the current reality, in particular in a market like this where there are different players, needs and a huge price range.
Last year, in the same period, i produced some analysis and stored data about the market. I analyze the selling and rental markets, deriving data from Idealista and Govt agencies.
Taking the entire Mallorca, actually there are 28430 properties for sell compared with 26860 last year, about a 6% increase, with an average price of 3570 €/mq compared to 3515 last year (+1.5% yoy). In terms of geographic distribution i see an increase of offerings in the North and East (more exposed to pure seasonal tourism).
Watching new developments, there are 76 new construction sites, a small reduction compared to last year, with price in line and skewed to luxury development particularly in the coasts, while the minimum average price for an apartment remained in 250k euro area.
The biggest shake has been testified in the rental market where actually there are more than 6500 offers compared to 3400 last year, near a doubling! The reflection in the average price is way less, with an actual average price of 11,62 €/mq compared to 12,5 last year,a 7,5% drop. Calculating a yield, a compression compared to 2019 towards minimum historical. The collapse in tourism obviously moved a lot of short-term rental towards longer ones, adding new listings and competing in price. At the same time the increased credit risk of a large parte of the local population created an increased search for good tenants, leaving outside large part of the people. (https://www.ultimahora.es/noticias/local/2020/09/06/1194505/pisos-alquiler-mallorca-opcion-solo-apta-para-funcionarios.html)
Notwithstanding this fall, Palma continues to be one of the city more expansive in Spain to rent, with a 6th position in terms of average rent for sqm(11,1) but the third most expansive in terms of average price for flat (1195 euro monthly).
So the effort for accessing to the rental market continues to be huge and a squeeze large part of the population...
But the biggest error in Mallorca is to consider the real estate market as an unicum: the market is divided in a large matrix made by location (different areas), sea-view or not, rural or urban, under 300k for locals/residents, second-home, prime and luxury, trophy assets etc. Nothing particularly new but at the same time it's fundamental to describe and analyze different price ranges and having views/opinions to provide.
Let's look at price and listing for different price brackets:
Under 300.000 euro: 9760 properties (34% of the market), average price 2180 €/mq
From 300.000 euro to 1mln: 12840 properties (45% of the market),average price 3420 €/mq
From 1mln to 3 mln euro: 4708 properties (16% of the market), average price 4708 €/mq
Above 3mln euro: 1338 properties (about 5% of the market), average price 8690 €/mq.
It's evident how the increase of the price for square meter is exponential for luxury products, having a large impact on the entire market. And right this is reason for having stable average price in Mallorca, the divergent negative trends in low range markets is compensated by the good shape of the luxury markets, with an increase in terms of offerings (there are a lot of new luxury development coming in the markets), coped with a decent absorption. But not all luxury market is the same and works: i see example of renovated properties in hyped area like Santa Catalina or Old Town at exagerated price, remaining unsold for months.. The stock of luxury properties in the market is high and new developments are coming in the markets with an effect of price plateau.
The foreigners' transactions have been drastically reduced by the impossibility to travel and a relatively large number of luxury flats priced at 1-2mln range keep staying on the market, unsold and without discount. I'm curious to see if some cash-flow problems will emerge and shake the quiet state.
High net worth individuals keep having interest in the real estate and most of them doesn't have any pressure in terms of mortgage, the number of distressed deals is really low and with small amount of discount, knowing that the request for this type of properties is mantained. (many choose to invest and relax here also during the lockdown and why not having the possibilities to work from home in front of the sea... add also that the alternatives are so scarce that someone see a 10mln villas as a way to store some money).
Instead a totally different market is having its course for resident and used homes under 300k: many people here are suffering due to the crisis and many are trying to sell for liquidity reasons, pressing the market with discounts until 20%. But what is really missing is the demand and the chance to access to the mortgages (some banks also hiked the cash equity request). But there's not a disaster, the pressure is there but large public wage assistance is keeping afloat large part of workers. So some effects but not a drama, with the possibility to find some deals in the market, particularly for houses with renovations needs.
The market is not easy neither for properties listed under a million and a half, where it's easy to find chalet dedicated to vacation and with expensive license listed at attractive prices by motivated sellers.
There are various offer of chalet/villa/townhouses in internal areas of medium/large size that need some renovation or have at least 20/30 years that have some discounted prices and could be bought at interesting prices, so satisfying increased request for space, garden and terrace. Strong attention to regulation, and fixing of some legal/construction problems is essential in most part of these properties.
Many are also trying to sub-rent some rooms to cover cash-flows but with scarce success and the impact on price for rooms is sensible, now around 330 euro, well below the 430 a months seen in 2019. If we add that also some hotels are reconverting rooms for long stays..
Also in central area like Inca, Manacor, Llucmaior it's easy to spot price reduction as they are principally towns lived by resident workers and suffering the internal context way more than location where second-residence home are dominant. For example in South-West the situation is still relatively good.
So the market is adjusting, the liquidity is scarce and the price discovery slow (see the graph below), due to the impossibility to travel, see tour houses and close deals. A reduction in the number of closed deals is having its climax this winter i guess, and the reopening of liberty to travel will bring a clearer picture: the reduced liquidity isn't a recent trend, it's something that started in 2017, and it's a problem explained by an increased bid/ask spread (the growing gap in the perception of value between sellers and buyers, often followed by a price adjustement).
Some (few) opportunities are emerging, maybe 1Q2021 will see some distressed deals to analyze but i think that also with a vaccin the equilibrium will be unstable and a lot will depend on how the economy and what kind of tourism will emerge. Changes in terms of the demand, society and working habits will have impacts on the type of properties, on the desired layout and features to meet future trends.
It's a grey picture until now, dark for someone but only partially sunny for the largest part.
Take care and work with independent professionals to have a fair views (in crisis times the objectivity is often thin too...)