Mallorca will be one of the first digesting the real estate bubble due to the strong property sales
Mallorca is a very fashionable location for foreigners who are thinking about investing in the property market.
Last year 2.400 properties were bought on the island which triples the amount of foreigners buying a property in comparison to the rest of Spain. 15% of the buyers even spent more than 500.000 Euros whereas in the rest of the country the percentage of buyers purchasing such luxurious properties is 5%. This sector ensures that the investor’s appetite is growing strongly.
There is also no need to sell property funds: Thanks to the large number of foreign investors the Spanish government and some of the most important banks in the country were helped out of crisis. The Balearic Islands are selling both of these funds without regress. A total of 7.726 homes were sold in the Balearic Islands in the past year including private bank repossessions.
The islands will be one of the first to digest the real estate bubble but not until at least 2018.
Taking a look at the market of foreign investors, the signs are encouraging: With a staggering 31%, they almost bought one third of properties that exchanged ownership on the market, a rate that triples the rest of Spain (11%). The majority of sales transactions were conducted by Germans with 36%, 18% were English and French respectively, 5% Swedish and 5% Italian. According to their embassy Russians can gradually be encountered even though they meet with some investment obstacles. The island where, thanks to the sun and superb Mediterranean beaches, tourism has ruled the roost for the past three summers, is now a major attraction for international investors eager to return.
A real estate dossier consisting of three reports, prepared by specialized consultants and property registrars, under the corroboration of some of the major players in this sector on Mallorca, points out to the same thing: the island is attracting foreign buyers at a pace not seen since the crisis began. A further fact is that different types of investors are being attracted. On one side there is the central European and Nordic middle class that see the island as an opportunity to guarantee a platform to capitalize their savings by means of vacation rentals for a number of years before using the property as their retirement home. Both phenomena are underlined by data. According to the latest report released by the Association of Property Registrars on the Balearics, the number of homes bought by foreigners has tripled.
Only Valencia and the Canary Islands show approximate figures. And it gets even better: One in three homes sold on the Balearic Islands (30.7%) remains in the hands of foreign investors while in Spain only 11% of all operations are conducted by foreign buyers. Another interesting aspect is the type of clients who are attracted to Mallorca: In no other region of Spain are foreigners buying more properties with a higher price than 500.000 Euros. In fact these purchases represent 15% of sales compared to 5% on average in the rest Spain where no other community can claim at least 10% of purchases at such a high level. "At the airport there is not enough space for the private jets this year," summarizes José Luis Guillem, the president of the promoters of the island, who ensures that they have associates whose best business sector is up-market housing for foreigners.
Wealthy Germans with fortunes are buying in Mallorca. The majority of the upper-class buyers are Germans including former executives from BMW and top CEOs of Siemens and Deutsche Telekom. It is fact that 36% of purchases made by foreigners on the island come with a German passport. British buyers also are finding properties near the island beaches, although they are a much smaller force: 18% of buyers speak the language of Shakespeare and Punta Ballena. In the statistics also a mixture of other European languages constituting 5% of real estate transactions on the island appear to be made up of Swedish, French and Italian. The Swiss are gradually starting to join, more timidly followed by the Russian, Dutch and Austrians.
What about the Russians buying property in Mallorca?
“There may be many but there could be more,” says the head of the Russian consular section in Spain, Konstantin Dorokhin, who explains that red tape and legal constraints prevent Russians from buying as much as they wish. The Germans, who have long been considering the island as their own, encounter fewer problems purchasing directly. This has been the case for decades but now money is moving faster and in larger quantities. Domingo Chaparro, agent at Perera & Partner, who works mainly in the German market in one of the areas with a lot of German presence (Cala Rajada) explains the phenomenon: "Last winter sales went well. We then stumbled into the summer but sales continued rising, especially involving Germans. Mallorca now is a profitable option for them. The prices are very tempting especially in comparison to Hamburg or Berlin where the cost of housing has doubled in recent years. There, no banks give loans exceeding 100.000 Euros for a property purchase. Here you will get such a loan at a fixed ten-year 2% interest rate. They rent their properties out for a few months and yield an annual return of 9%. This will cover the bank interest, community fees, taxes and maintenance. Besides having a property to spend your vacations, they will cover their retirement in a few years time.” Chaparro describes the typical client: Middle class with savings from a lifetime of work and they are coming to Cala Rajada. But there is another type of German client: The ones that are purchasing in Palma, Calvia, Andratx, in the Tramuntana or Costa de los Pinos, areas where luxury villas are rented for 500 to 700 Euros a day. "This is clearly a good business: We are a stone's throw away from mainland Europe, and the island is easily accessible by private planes," says the leader of the promoters’ support analysts, Alejandro Grau.
The director of one of the real estate division of Banco de Sabadell called Solvia, draws up two profiles of investors who are digging deep into their pockets: They are buying mansions for their summer holidays investing money in iconic buildings in order to obtain profits through commercial rentals: "We are detecting an increase in confidence among investors seeking unique assets or landmark buildings. They are mostly German but also English and Nordic. Thanks to them and the Euros they spend in the course of their search for a profitable investment in a Mediterranean paradise, the Balearic Islands stand out as one of only three communities in which housing prices rose during the past year. And they are also the region where the square meter prices rose by more than 3%.” The Ministry of Development reveals in data collected in a report issued by the Institute of Business Practice that after 25,000 jobs were destroyed during the crisis, the construction sector still remains depressed but is at least starting to see a horizon of confidence that the rest of Spain could not even dream about. Little by little, this is leading to a revival of construction activity. For example after the purchase of the CAM by the Banco Sabadell, Solvia, the real estate brand of the Solbank in Spain, is being encouraged to promote its own developments in places such as Cala Vinyas and urbanization Las Palmeras, close to Palma de Mallorca.
And large international real estate groups have also specialized in the luxury segment. That is reflected in figures such as the slight increase in work endorsed during the first half of the year, an increase of 4.7%, according to the Association of Architects of the Balearics. All this brought Mallorca to the exit ramp of the real estate crisis. In spite of this there is still a fair way to go yet. Even though the Balearics have a better standing in Madrid than any other region, it will still take four years before the huge bag of unsold homes has been digested and the crisis overcome.