Further to one of the strictest lockdowns in Europe, which started on March 15th, positive news was announced on April 28th by the Spanish President, Pedro Sanchez, with the start of a gradual 4- phase Transition Plan from May 4th through to the end of June.
Each phase will be implemented around the country depending on the specific situation in each province and on each island. Every two weeks will mark a new phase of opening up until the end of June when the confinement measures are programmed to end. President Sanchez also indicated in the press conference, that the use of second homes by Spanish residents could be permitted in the last phase. Once these phases have been completed he indicated that there is a possibility, subject to international health regulations and flight operations, that some European nationals will be able to enter the country to use their second homes.
As the Balearics have reported one of the lowest rates of Covid-19 in the country, the hope is that the government will be able to ease restrictions ahead of some of the worst hit regions. In Mallorca several villages have been declared Covid-19 free including the picturesque village of Deiá.
In 2019 real estate was the second most important sector of the Balearic Economy constantly accounting for over 20% of the region’s gross domestic product since 2005 with over 4.1 billion euros* in real estate sales transactions in 2019. Since 2012 an average of 44% of the value of these transactions were made by overseas buyers. (*source Ministerio de Fomento)
Legal situation regarding real estate under lockdown
The notaries confirm that any contract timing is suspended during the state of alert that began on the 14th March and which continues in force. Subsequently, all agreements are automatically extended by this period and their eventual extensions. In some cases vendors and purchasers are giving power of attorney to lawyers to sign contracts on their behalf if they cannot physically sign at the notary. Final inspections and handovers are often arranged via video conference. During this time the notaries will preside for any urgent cases, in fact sales have gone through when the agent has had the power of attorney. Interestingly it is almost impossible to find any contractual parties looking to step out, or negotiate their contractual agreements.
Impact on price development
During the financial crisis of 2008, the success of real estate was one of the main factors in the revival of the Balearic economy and since 2012 overseas clients have invested almost 11 billion euros*. This has been a driving force in the recovery of the economy and represents in excess of 36.000 transactions to overseas purchasers since the islands began their powerful comeback. (*Ministerio de Fomento).
Since 2008 the Spanish financial system has been obliged to strengthen itself by limiting exposure to real estate and reducing leverage within households and business. The number of new mortgages registered during the past three years in the Balearic Islands is 75% lower than the mortgages arranged in the equivalent time prior to the international finance crisis of 2008. In addition, a credit line of 200 billion euros, as a first economic measure, has been secured by the Central Government and Banks in order to keep the economy afloat.
That period demonstrated, in the majority of second home market cases, that there wasn’t a panic to sell. In the past few years, over 80% of second homes transactions by Engel & Völkers have been cash sales. Furthermore, the extremely limited availability of building plots ensures a healthy balance between supply and demand.
Under these conditions a second home owner will be inclined to wait out the current crisis until the market is moving once again. So although some price adjustment is inevitable bargain hunters might be disappointed.
To underline this factor, the historical records of average prices indicate very little change property values (see graph below):
Fluctuation Average Purchase Price Balearic Islands.
Red: All Buyers // Grey: Foreign Buyers Only
Comparison Average Purchase Price Balearic Islands
Red: All Buyers // Grey: Foreign Buyers Only
Currently Spain’s borders are closed to international traffic. The Balearic National and International Estate Agent Association (ABINI) supports the local government in their endeavours to protect its resident citizens and incoming international visitors. Our colleagues in other second home hotspots including France, Italy and Portugal, all face similar challenges.
When the necessary protocols are in place and the government, in conjunction with the Spanish Airports Authority (AENA), are confident they can open the borders to welcome visitors once again, we will of course be advising our clients accordingly. Currently this is unlikely to happen until the summer (see opening paragraph).
In many conversations held with clients throughout Europe during the past weeks, the fact that the Balearic Islands’ health system is working effectively and that the Covid-19 infection rate is very low, has been highlighted as an additional benefit of the region.
After Easter constructors started work again and all new residential real estate projects in Mallorca continue to move forward. According to the Balearic Association of Developers (PROINBA) in the past four years there has been a significant increase in building licences granted in Mallorca from 830 in 2015 to approximately 1,440 in 2019. Due to the sheer lack of plots for construction, developers have focused on building high-quality luxury real estate. Apart from one exception, all Engel & Vökers clients with contracts signed still want to complete and are waiting to visit to sign at the notary. According to PROINBA there is an accumulated shortage of new housing in the Balearics of 15.000 units and the population increase of over 40% since the year 2000 will keep this figure high. Developers are not experiencing any sign of withdrawal nor reduction in demand and continue with virtually all purchase commitments in place and moving forward.
In the current climate prop tech tools have become increasingly useful to provide potential buyers with a first impression of off plan projects. High quality renders combined with drone shots of the location and the latest high-performance animation technology have become increasingly sophisticated. Virtual viewings are and will become an important tool in the future for clients to make their initial selections. However, bearing in mind the privileged environment of the island, nothing will replace a personal visit to fully appreciate the unique atmosphere of each property. The industry is swiftly adapting these new technologies.
Enquiries and sales
Even though the majority of real estate transactions have come to a halt, Engel & Völkers with 22 property shops in the Balearic Islands and 18 property shops in Mallorca reports steady interest from overseas (especially for property with outdoor space) with a level of internet requests slightly lower than the same period last year.
“Many of our clients still want to pursue their long-term plan of investing in property in this region and are patiently waiting until our borders are open once more. The Balearics have always been regarded as a safe haven in the Med and when this crisis has passed, the revival for island locations with a quality lifestyle in a safe and protected environment will come into their own,” says Florian Hofer, Managing Director, Engel & Völkers Balearic Islands.
In the meantime, keep safe and we look forward to seeing you in Mallorca!