Spanish and Mallorca Property Market Update - Beware of Off Plan Property

No one has to remind you of the difficult times				savings in the deposit! And don't think that this
effecting the Spanish property market, and the local				problem has reached a peak. Most experts agree
regional markets including Mallorca. Press reports,				that not until mid 2010 will the number of new build
economic studies, reports from the EU and even				properties in the pipeline, and reaching completion,
none too impartial reports from the Spanish				stop exceeding the take up in the market i.e. the
Government itself, all point to "double trouble" in				stock of unsold properties is going to carry on
Spain - economic recession as a consequence of the				growing!
international financial crisis plus the "home grown"				My advice - "be very wary of buying off plan" and
property market crash resulting from an economy				where buying a completed new build property make
far too heavily dependent on bricks and mortar and				sure you do thorough checks with your lawyer to
which has not gone into "slow down" but "melt				ensure the appropriate insurance guarantees are in
down" following a 7 year speculative development				place.
boom of almost unimaginable proportions.				In relation to prices and underlying values, only buy if
During this time the Spanish construction sector				you are in this for the long haul. I have long
delivered upwards of 700,000 new units per year				maintained that the Spanish and Mallorca property
when underlying long demand is less than half of that				markets would probably not see any return to
(and likely to find a new level of 200,000 per year				positive territory until 2012. No one accused me of
for the near term). Now the construction companies,				being too optimistic (quite the opposite!) but I now
from the largest household names down to the local				think it could be some time later. How does 2016
builder, are going out of business by the day leaving				sound for the Spanish market as a whole?
an alarming number of unfinished properties on the				Will Mallorca fare better? Probably. The estimates of
market, apart from the ever growing stock of unsold				unsold stock in the Baleraic Islands are around 16,500
completed new properties and, perhaps more				units while the much larger Communities of Andalucia
worryingly, a banking sector that, to hide its				and Valencia are facing an overhang of 176,000 and
exposure to the construction sector, has in effect				155,000 respectively! Even after taking account of
become a dumping ground for unsold properties				the population differences, the situation in these
(over 110,000 properties are sitting on the balance				areas, and others like Murcia, are significantly worse.
sheets of the banks with estimates that this will				As regular readers will recall I have long maintained
grow to 150,000 by the end of the year). Add to				that the Mallorca property market has some
that the other 800,000 plus new build homes still in				defensive qualities, which include this "better than
the hands of the developers and unsold, and you get				Spanish average" supply side picture and a demand
a feel of the problem and the difficulty that the				side predominated by life style purchasers rather than
property market will have finding a stable base while				investors. The strength of the Mallorca "brand" adds
this supply overhang persists.				further support to the market.
I will comment in more detail about the implications				That said it is not reasonable to assume that the
for the housing market and Spanish economy of this				Mallorca market can be de-coupled from the wider
weight of unsold properties in a separate report as				Spanish property market entirely. Problems of
here I want to emphasise the point that buying off				affordability, unemployment and wider general
plan is now very risky and even buying completed				economic weakness effecting the tourism sector are
new build should be approached with some caution to				all realities in Mallorca and can not be ignored.
ensure all necessary Guarantees are in place and				Property asking prices in many cases remain high
backed up by the appropriate Insurance Company				where owners and agents have failed to readjust to
policies (a legal requirement but one ignored by some				the new market conditions and this alone is acting as
of the many developers going out of business,				a heavy weight on the local market. Other asking
leaving purchasers with no recourse in the event of				prices are now more in line with underlying value and
problems with the build quality in the future).				thus have a much more limited down side risk. Others
A recent study of new build properties started 2				should carry a bold "health warning"!.
years ago suggests 25% are not finished, and are				The conclusion? It is all about "stock selection" ie if
unlikely to complete in the near future, due to cash				you are looking to buy in Mallorca do so with caution
flow problems and the bank credit squeeze, a none				and look for the well priced properties hidden
too happy picture if one of those thousands of				amongst the ridiculously over priced.
properties is yours and you have tied up your life