Mallorca Property Market Update 2008

2007 Review

Demand for property in Mallorca continued unabated throughout 2007, and UK buyers were at the top of the list for overseas buyers. If you are thinking of buying property in Mallorca, you would be joining just over 54,000 EU residents (of which 19,623 are British) now living here permanently, together with an estimated 60,000 second home owners from UK. Mallorca’s permanent foreign community of 16.8% is the largest of any province in Spain with significant numbers coming from Germany, France, Italy and South America. The population of Mallorca stands at 791,000, with that of the Balearics in general at just over a million, an increase of 31% in the last ten years.

The general objective of offering the visitor quality and variety year round has been embraced by all sectors of the island’s tourism industry. The overall number of hotel establishments has been reduced, whilst the number of 4 and 5 star hotels has almost tripled since the early 90s. Foreign tourism in 2007 was more lucrative in the Balearics than any other area of Spain. Between January and September, it accounted for 20.2 per cent of the total spent in Spain by overseas visitors and we now welcome more than 9 million visitors annually.

All the low cost airlines have increased routes and flight frequency to the island, and on certain days in the peak season the airport handles more aircraft movements than London’s Heathrow.  In March 2007, Ryanair announced new routes into Palma from Liverpool and London Stansted, bringing the total number of airlines featuring Palma to 17 from 24 airports around the UK . Over the year, the airport handled a record 23.3 million passengers, four percent up on last year.

In general, most property professionals agree that business has been healthy, with steady requests for the blueprint two bed, two bath apartment, preferably with sea view.   The top end of the market has been flying high with the best gems being snapped up before even making photograph stage, let alone to agency websites.  Changes were seen however, in the long term rental market, which has picked up more mid range property from vendors who have tired of waiting for the right buyer. 

Palma
Palma is a chic, safe city with a medieval quarter.  Only ten minutes from the airport, it’s fast moving upmarket and attracting younger buyers and Euro commuters – 19.7% of its population are non Spanish.  It’s extremely easy to find your way around and to park though many city buyers happily dispense with a car and rely on public transport and the taxi services.  Palma city council is soon to introduce a bicycle lending scheme too. 

There are now more green and pedestrian areas, but as these are created, so are hi-tech underground car parks which guide you to vacant spaces with green lights.  A state-of-the-art underground vacuum system whisks away city rubbish, and with the introduction of heavy fines for littering, the city has become altogether a cleaner place to live.

Work continues on the first phase of the island’s new metro system, expected to be fully operational in April 2008, connecting the main railway station in Plaza España to the university, and a third lane is to be added to the Via Cintura ring road on the stretch from Valldemossa to Genova.

Costly renovation programmes in the old city are still in evidence, with facadism often favoured (a compromise between demolishing and rebuilding, retaining the front elevation) sometimes incorporating the typical Mallorquin, glazed “winter balcony”. In this case, developers take the opportunity to install a lift.

Traditional features such as terracotta tiling,wooden beams and Santanyi stone window surrounds bump up the price.  Outside space and open views are not easy to find so lofts and penthouses are costly as are apartments in palacio type buildings with courtyards.  Prices range from €2500 to €6500 per sq metre.

• Calatrava is a historical area of labyrinthine streets surrounding the cathedral.  Residents can apply for cards to barriers (hydraulic bollards) if they’re lucky enough to be part of the 5% who have a parking space in the old city.
• La Lonja, formerly part of the harbour side scene is a lively, trendy district with lots of bars and restaurants. 
• Santa Catalina surrounding Catalina market has become hugely in demand, with its café culture and bistros.
• Prices have risen sharply in Portixol on the eastern fringe of the city.  Frontline fishermens’ cottages command top prices if they ever reach the market.  Molinar and Ciudad Jardin just along the coast offer an alternative though parking is still restricted.

Across from Portixol harbour, a very ambitious project gets underway in 2008.  Palma’s congress centre will change the look of the waterfront and establish the city as a competitive business destination.  It will provide a central auditorium, several conference halls housing over 2,000 people, a café and hanging gardens overlooking the bay of Palma.  Alongside this will be a five star hotel, gym, spa, bars and restaurants.  The winning design, awarded to spanish architect Francisco Mangado, resembles a gigantic fish on the shore, with laminated glass panels like shimmering scales. 

South West Mallorca

The southwest corner of Mallorca is the most developed.  Prices are high due to its infrastructure and proximity to the best golf courses, marinas and Palma. All year round life is guaranteed unlike other parts of the island, which can be too quiet for some in the winter months.

The most popular stretch runs from Bendinat/Puerto Portals via Santa Ponsa to Andratx.  The motorway extension to Paguera, which cut the journey last year from Palma to Puerto Andratx by ten minutes, has generated more interest in S’Arraco and San Telmo further west.

Good, sea view plots for construction are virtually non-existent now in the south west of Mallorca and there are fewer and fewer plots left where a licence to build apartments is likely to be granted.   The additional costs of constructing smaller communities on unfavourable sites (steeper slopes, difficult access etc) are passed on to the buyer.   Consequently, you will have the choice of buying a new apartment at considerable cost in a second rate location, or an older apartment in a great spot which may still need renovation.

Expect to pay at least €395,000 for a two bedroom apartment, more if it has seaviews.  An apartment with frontline seaviews may cost €475,000 upwards, and possibly need some renovation.  Remember that all the best coastal locations were taken by developers in the late 80s to mid 90s.

You will also pay a premium for renovated apartments overlooking a golf course. Fincas and detached properties with seaviews now fetch €1.2m upwards whilst villas in highly desirable locations such as Puerto Andratx cost €1.5m - €3.0m and more.    
 
North West Tramuntana
This is Mallorca’s most dramatic region, dominated by a chain of craggy, limestone mountains stretching from Andratx to Pollensa.  Impressive peaks rising to 1,500 m and plunging sea cliffs are intercepted by sheltered valleys of olive or citrus groves and picturesque villages. Frequently referred to as the "other Mallorca", it's a walker's paradise.

Soller and its picturesque Port have been undergoing a transformation and fast going upmarket.  Following the opening of the toll tunnel to Soller three years ago, prices began to rise in the area.  The naval base and workshops were demolished, the harbour restructured and a second tunnel (Sa Mola) opened in 2007, taking traffic away from the seafront to make way for a pedestrian only promenade .  The only exception is the antique tram which runs from Soller town to the port, the last remaining tram in service in Spain.   Further investment of €3m provided wooden decking for the harbour side restaurants. 

A new wave of restoration of existing buildings has brought out the French and South American influences on this area which originate from the historical trading and immigration links between Soller, France and Puerto Rico. Recently opened hotels include the British run L’Avenida, (a 100 year old “señorial” mansion house), La Vila (a typical 19th century art nouveau townhouse) and the 1954 seafront Hotel Esplendido.

The most exciting news of 2007 to complete Soller’s metamorphosis is that the Jumeriah group (running Burj Al Arab in Dubai ) has taken over the Sa Talaia site which since 2002 has been the subject of much controversy, an unfinished structure dominating the skyline on the cliff tops above the port.  Their first project in Europe, they hope to create the "most luxurious hotel in the whole of Spain" with 120 sea view suites.  It is expected to open in 2 years.

Deia and Valldemossa are the famous, picture postcard mountain villages in the northwest.  A stone townhouse may cost €285,000 upwards, but expect to renovate.  A traditional, renovated stone townhouse with outside space will need €385,000 upwards.   Detached fincas can be found from €600,000 but those which have been renovated with charm and character, a pool and sea views will need more than €1.2m.  

North East Mallorca
You can now reach the pretty town of Arta in the north eastern corner in 55 minutes from Palma.  As you leave Manacor northwards, the C715 runs through picturesque orchards and pastureland.  The town is surrounded by the ancient hunting grounds of Mallorcan royalty, with the peaks of the northern Serra de Llevant Mountains as a backdrop.  It’s rarely troubled by the coastal package tourists, there are four golf courses in the vicinity and some of the region’s most secluded beaches are close to hand north of Cala Ratjada. 

Inland Mallorca
The Inca to Sa Pobla section of the new six lane Palma to Inca motorway was finished last summer, cutting the journey to 25 minutes from the capital to Sa Pobla in the north where the application for building licences tripled in the last three years. 

For golfers, 2 new courses are nearing completion, Son Gual on the Palma to Manacor road and Golf Park Puntiro on the old Sineu road.  The Maoris, between Arenal and Cala Pi, opened in October last year, bringing the total number of courses to 22.  Although more were in the pipeline, notably Son Real (Santa Margalida) and Son Bosc (Muro), local government has now clamped down on plans for more. 

Still on the sporting front, an estimated 80,000 cyclists visit Mallorca every year. Cycling clubs use the island for training in the shoulder months which brings in further revenue out of peak season.  There are now 311 km of sign-posted cycling routes and Mallorca’s latest sports facility, a world class velodrome, hosted the track cycling world championships in March 2007.   

It is no longer the case that property in the centre of the island is cheaper as the road system is continually improving.  Furthermore, fincas for renovation are in short supply.  A complete ruin with 8,000 sq metres of land will still fetch €160,000.  A word of warning - over the years, the local custom of “adding on” without planning consent has resulted in some enormously appealing fincas, but thorough research and legal checks should always be made. 

Traditional, stone faced village properties needing renovation cost €275,000 upwards and renovated houses with gardens and good views from €375,000, depending on area.

Coastal Areas

More than ever before, regional government has come under fire from environmental groups to ensure the island does not succumb to over development and to protect its 555 kilometres of coastline. This is a delicate balance in view of Mallorca’s heavy reliance on the tourist industry – the service sector accounts for almost half of Mallorca’s businesses.

In established coastal resorts, there are long-term plans to demolish and rebuild whole areas.   Consortiums are currently bidding for the controversial regeneration project at Playa de Palma, a massive undertaking involving demolishing old hotels and injecting life into 6 kilometres of seafront between Arenal and C’an Pastilla.  It is due to get underway early 2009 though part of the project, the €3m Palma Aquarium at C’an Pastilla, funded by the Israeli company Coral World, opened to the public in June.

A study by the Ministry for the Environment in Madrid in November reported 730 infringements against the coastal regulations in Mallorca.  The majority involve pools, beach kiosks, car parks or properties/hotels fallen into disrepair or ruin.  Local government  is now undertaking measures to enforce the report’s recommendations – which in some cases will mean demolishing certain structures.

At the same time, specific areas have been identified where no further licences for urbanisations are to be granted, notably Can Vairet (near Port Adriano in Calvia), Muleta in Soller, Cala Marcal in Felanitx and El Vilar in Pollensa.  Montport and Cala Blanca in the municipality of Andratx are also affected.  Furthermore, a part of the half island of Alcanada (Alcudia) is to become protected, bringing the total land area affected to 1,516 hectares.

In the nautical sector, Mallorca now rivals Antibes as the super-yacht hub of the western Mediterranean.  The island now features over 16,000 berths backed by a skilled workforce to repair and refit throughout the year.  There are plans to expand 8 of its 32 harbours, namely CV Puerto Andratx, Cala Gamba, S’Estanyol, Colonia de Sant Jordi, Porto Colom, Cala Bona, CN Cala Ratjada, and Puerto Soller, providing up to 4,500 more berths.  In Port Adriano, a €40m project is underway to expand the marina by 82 berths.  The designer Phillipe Starck is leading the team in the design of the service areas and shoreside facilities.

In 2007, income from visitors pursuing leisure marine activities in the Balearics amounted to €544m, representing a 15% increase over the previous year.  This was derived from almost 300,000 nautical tourists during the year, a figure that has grown steadily and almost doubled since the mid nineties.

According to statistics, Palma now ranks third as a cruising destination in the Mediterranean behind Barcelona and Civitavecchia in Italy.  An investment of €23m was recently announced to build a new jetty in Palma’s West Quay to enable two cruise ships of up to 380 metres long and 30 metres wide to dock at the same time on the same quay. This project will further encourage the “mega” cruise ships to visit Palma and is scheduled to begin operations in spring 2009.

2008 Predictions

If you have kept up with any reports in the overseas property press, the general picture for Spain as a whole is of a slow but steady fall in property price inflation, which suggests a soft landing for the Spanish property market after a decade-long boom

However, there are local differences and unlike parts of mainland Spain, Mallorca has not suffered from an over-supply of speculative builds, therefore demand, especially for quality apartments, is in balance with or exceeding supply.  Coupled with the lack of good plots (particularly in the south west) and restrictions on licences, prices for quality property in sought after locations are still likely to rise 7-10%, depending on area. 

Quarterly statistics released by the Spanish Ministry of Housing bear out this trend.  Furthermore, although housing starts throughout Spain had fallen generally by 33-37% in the 2nd quarter of 2007 (and by as much as 64% in Andalusia), planning approvals in the Balearics actually rose by 21% in the same period. 

Front line property will remain an excellent investment, even more so if there is direct sea access, as coastal authorities are tightening up.  They are not introducing new laws, simply implementing existing ones.  Quality builds and properties in prime locations will continue to be in demand.

Developers will be looking at other areas of the island.  Some have likened the wide, natural bay of Porto Colom in the south east to Puerto Andratx, and it provides a natural extension to the protected cruising grounds further south of Cala Mondrago.  Port authorities there have been given the go ahead to increase the number of moorings from 52 to 130, the dredgers have moved in and the first chic eateries have appeared on the harbour side.  This is one area already targeted for new apartment communities.

In the north, the world famous Richard Rogers was one of several architectural firms to put themselves forward to lead the planned conversion of the Alcudia power station into an Arts and Science Museum.  The front line site, adjacent to the Port of Alcudia and at the entrance to the sought after Alcanada residential area, has been an abandoned eyesore for years and this will provide a major boost to the town.  

2008 will be the year of the train and the Ministry of Transport has allocated half its annual budget to extend the rail network link from Palma via Inca and Manacor to Arta.  Unlike Pollensa or Cala D’Or, which are popular with UK tour operators and villa rental companies, the north east of the island around Arta is not well known amongst UK buyers.  Prices are still 10-15% cheaper than elsewhere, but not for long.

In light of increases in Euribor pushing up the cost of financing, some agencies may feel the pinch this year in the lower price sector and vendors in the middle sector will have to be more patient than usual.  The wheels of the second home market will be grinding a littler slower in Mallorca albeit with some oiling from top end buyers.

Property in Mallorca is not cheap – the type of investors attracted to the island is driven mainly by lifestyle changes rather than for short term profit.   Together with all the benefits of buying in Spain in general - short flight times from European destinations, an outdoor lifestyle, a safe child and family friendly culture - Mallorca offers that bit more.  Its microclimate, sophisticated leisure choices, superlative healthcare and the fact that you are never more than 25 minutes from any part of the coast make up a highly
attractive package.