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How coronavirus will impact Mallorca Real Estate market in 2020?


Impact of COVID-19 on Real Estate

What does Covid-19 mean for the housing market in Spain and Mallorca in particular? A question that is regularly asked. The global Corona pandemic will certainly leave its mark on the real estate market, but the question is whether it is such a dark scenario as some have outlined. We do not think so and by means of this blog we want to try to give an objective opinion about the current situation and the expectations for the near future.

General situation in Spain

On 14th March 2020 the Spanish government has declared the state of alarm and national lockdown. Since then the real estate market in Spain has been affected by the consequences of the measures. A complete stand-still: contracts were not signed, real estate offices had to close their doors, properties could not be shown to potential customers and investment funds were reluctant to purchase properties.

Uncertainty rules the current market. Worldwide economic growth is expected to go down and there is a substantial risk of global recession. Experts think that the property market will not be as usual until at least the end of the year. Some expect huge price drops and are even talking about reductions around 10%. Why? Property demand has fallen, people lost their jobs or have lower salaries. Some owners have been forced to adjust their prices down due to the current situation in order to sell quickly to obtain liquidity. All this seems particularly negative for the sector, but there is certainly light in the darkness.

Before the Corona-crisis started Spain was economically doing much better than before, likewise the real estate sector. It is therefore assumed that once the situation returns to normal, the market will reactivate intensely. Experts are convinced that there is currently no valid reason to postpone or cancel investments. History teaches that when the most critical situation has passed, the recovery of the real estate sector is strong and with the current uncertainties on the financial markets and the low interest rate real estate is certainly an excellent investment. The largest price drops are expected in the lower segment of the market. The question now is whether Mallorca will follow this trend.

Situation in Mallorca

Of course, it is impossible to look into the glass ball, but Mallorca is an island with a unique character. The Balearic Islands, and Mallorca in particular, will be better able to withstand the effects of the crisis than mainland Spain and the property market will be less affected.

Geographically, Mallorca and her Balearic sisters Ibiza, Formentera and Menorca are better off than the mainland of Spain. Simply because of the distance from the hearth of the virus created by the width of the Mediterranean Sea. The Balearics have one of the lowest infection rates of Spain as can be seen in the graphic below.


Number of confirmed cases of coronavirus in Spain as of May 4, 2020


The virus did not have an influence on the beauty of the island: the mountains are still fabulous, the sea is still turquoise, the villages are still pretty, Palma is still the mundane capital it was before and living in Mallorca is still attractive. These are precisely the factors that still make it interesting to invest in a permanent residence or a holiday home on the island. Up till now Soller-Properties kept receiving enquiries for properties in the region of the Soller-Valley and Deia and since Prime Minister Pedro Sánchez announced the de-escalation measures of the lockdown, we notice a daily increase.

Mallorca: Covid-19 versus global financial crisis in 2008

Often comparison is made to the global financial situation of 2008, but the current crisis is totally different. Twelve years ago, the main issue was the severe real estate bubble with too many constructions and unhealthy mortgages. Today the financial sector and the real estate sector are much healthier, interest rates have never been so low, and owners have less debts. The Balearics started 2020 in good health. In the first trimester it was the 6th Spanish community with the highest price increase. After Guipúzcoa (€ 2.453/m²) and Madrid (€ 2.399 /m²) the archipelago had the 3rd most expensive square meter price (€ 2.301 /m²). In the first quarter of 2020, the average price of housing in Palma increased more than 7%, making it one of the most expensive cities in Spain.

The Majorcan lesson that can be learned from the 2008 crisis is that at the time, the price level of real estate in Mallorca did not drop as dramatically as in other parts of Spain (in some cases 40% less). In fact, the prices for properties in the middle and upper class remained almost the same and when the crisis was over the economy revived relatively quick and strong.

Based on the past experience it is expected that there will be little movement in the price of properties in the middle and higher range. It is really unlikely that historical estates, villas with sea views, idyllic townhouses or sought-after fincas will lose their value because of the Corona crisis. In the lower range some good property opportunities might come up as well as in the commercial sector.

5 reasons why to invest in real estate in Mallorca

  1. Mallorca is a beautiful island with a lot to offer, a Mediterranean climate and a relaxed lifestyle. The infrastructure is well developed, it is considered to be very safe (even in times of a pandemic like Covid-19) and it is well connected with the mainland and other parts in Europe.

  2. The stock markets are very unpredictable at the moment. Real estate is a solid bet when it comes to investing money and Mallorca benefits from an excellent reputation when it comes to investments.

  3. Over the last 5 years Mallorca had compelling price increases of approximately 31%.

  4. In 2019 the numbers of tourist and property sales went up with more than 1.5 % and, despite the health crisis we are currently in, international buyers (mainly from Germany, Scandinavia and the United Kingdom) and holidaymakers will return to the island and look for their dream home to live.

  5. The interest rates in the Eurozone are expected to remain at their current low level. The Euribor (the indicator for most Spanish mortgages) will not increase dramatically. Real Estate will remain one of the best assets to invest in.

Buyers versus Sellers

Spanish Property Insight published the results of a recent survey and one of the outcomes was that buyers and sellers in the Spanish property market have different views on how the Covid-19 crisis will affect their behaviour.

According to the survey the majority of the potential buyers tend to wait for bargains. A fifth is willing to change their plans, while nearly 30% will withdraw from the market.

On the other side, the majority of the sellers is willing to wait until the real estate market gets better and wants to withdraw their property. Something buyers did not expect at all. Only a tiny bit more than 10% of the sellers is willing to lower their asking price.

Conclusion

The prospects for investing in Mallorcan property are positive. There is no economic ground for buyer or seller to withdraw from the market. When will the real estate market be back to normal? Difficult to say. If everything goes as planned, the de-escalation should finish by the end of June. The local government of the Balearic Islands is currently negotiating to ease restrictions quicker ahead of other regions in Spain as the Corona infection rate has been relatively low. Opening the borders will have an enormous impact on the reactivation of the property market.

Soller-Properties team is stand-by to help you find your ideal property in the Soller-Valley or in Deia. Do not hesitate to contact us already. Remotely we can still do a lot. Let´s start looking at your housing plans for the future and make your dream come true.

Finally, we would like to express our gratitude for the medical and civil work done in times of the Corona crisis. Our thoughts are with the Covid-19 patients and their relatives.

We strongly believe this crisis will be over soon and a beautiful future will lay ahead!

Browse now our properties for sale in Mallorca in the areas of Soller, Fornalutx and Deia:click here



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