Do property prices in Mallorca have further to fall?

A brief update on the market here. Inevitably we are frequently asked "what's the market doing?", "do property prices in Mallorca have further to fall?".

No doubt the global financial crisis is not over yet. And it is important to remind ourselves that it is a global crisis and that it is not confined to just the Euozone. Having said this Spain is very much at the forefront with many predicting it will soon require a sovereign bailout.

The main reason Spain is in quite such a precarious position is the collapse of its property sector. New homes are not selling and construction has all but stopped. Resales have also slowed dramatically.

The knock-on effect into other areas of commerce and industry have been equally dramatic, putting the Spanish banks, as the main lenders to the property sector, in a precarious position.

One inevitable result of this is that Mallorca property prices have fallen, anywhere from 20% to 30% or more depending on which report you are reading, since the outset of the crisis.

This and the pressure on some owners to sell quickly have created property buying opportunities that have just about kept the market moving, the prizes going to the more entrepreneurial buyers who see this as a good opportunity.

Ironically, the market has also been supported to some extent buy wealthy people looking for a safe investment and seeing Mallorca as a quality location that offers just this - provided they buy at a competitive level, which they invariably do.

This summer however there has been an apparent change in that people are once again buying simply to own a holiday home in Mallorca. Of course, they are concerned they will have a solid investment and, therefore, that they buy sensibly. But they are buying a second home and the motivation for this is primarily to improve their lifestyle.

This is not a large scale change. In part it is driven by the seasonal factor - the summer months being a time when lifestyle purchasers combine property hunting with annual holidays. But there is a definite increase in property buying activity compared to the same periods in recent years.

Why this is happening in the face of an intensifying Euro crisis is not clear. Our view is that people are coming to accept crisis as the new "norm", at least for the next few years. They can see the continual bungling of Eurocrat politicians is having little effect and simply want to get on with their lives.

Furthermore, Mallorca is still clearly a highly desirable place in which to own property. Something we agree with provided you are buying in a location that is well established with international buyers.

Going back to the original question, are prices likely to fall further? Our answer is:

Overall, yes. The domestic (non international) and lower price package tour resorts face structural issues that are likely to take years to resolve.

However, the mid and upper price levels within the international sector, specifically in the prime locations in Mallorca, are different. While many properties are still relatively overpriced at pre-recession levels, other properties for sale have been adjusted to sensible prices and new listings are tending to come to market at more realistic asking amounts.

This is the beginning of the process of prices leveling out. In any property market anywhere in the world, desirable properties in the best locations will fall by less overall and will find their price floor earlier than less desirable properties.

The reason is simple - supply and demand. The stock of truly high quality properties in Mallorca is relatively small. Coupled with this, the underlying demand is strong, an equation which supports prices.

This is not to say the market for prime properties in Mallorca has turned against the buyer. The "leveling out" process will take years and within this there are good opportunities for investors and lifestyle purchasers alike.

The key thing, as in any property market, is to understand the market and buy well, something we at Mallorca Property Partners can help with.

To read more about how we can help your Mallorca property search, see our website mallorcapropertypartners.com.