Rental properties in Mallorca – a secure investment?

Legal Situation - Renting property in Mallorca became a hot topic last year and, as much of the reporting was not entirely accurate, it caused confusion. Therefore this section addresses the legal issues and clearly emphasises what is still possible for all property owners to do.

The local government has addressed the problem of owners illegally renting their properties for holiday lets without the required licence and not paying tax on the generated income. Fines of up to 40,000 Euros have been introduced with a moratorium on the issuing of licences until August 2018, pending a final decision on how to regulate property rentals. Currently, any owner can rent out their property depending on certain conditions:

All long term rentals (a period of over one month) for any property including apartments, do not require a licence. However, the property must have a certified energy certificate and an occupancy certificate (cédula de habitabilidad). Private renting of all apartments for holiday lets is prohibited (and always has been).

A villa/finca can be rented for holiday use with a Government DRIAT tourist license number. No new licences will be issued until after the moratorium.

All rental income has to be declared and tax paid either by the owner directly (if resident) or by a third party (such as a tax advisor) working on behalf of a non-resident owner that declares the rental income on their behalf and pays tax in Spain. Engel & Völkers recommends that clients make contact with a local tax advisor. Owners who wish to rent out their property for part of the year and are unclear about their specific situation should seek the advice of a local lawyer as to the legal conditions which may change after summer 2018.

As a result of the new legislation and the possible high fines, it is likely that more apartments will come onto the market for long term lets or for sale.

Palma de Mallorca

The demand for rentals boomed in this area with prospective buyers preferring to rent for a year or more before buying. Many factors affect the rental price: outside space with privacy, parking, elevator, heating, A/C, views, age and general quality of the property. Apartments that have all these facilities are in short supply and this is ultimately reflected in the monthly rental price. Since the introduction of large fines for illegal holiday letting of apartments, towards the end of 2017 Engel & Völkers saw a trend for more owners to put their apartments on the long term rental market with an average entry price of 1,500 - 2,000 Euros per month. The main nationalities that rent are German, Swiss and Scandinavian and the most popular areas are Calatrava, Cathedral, Paseo del Borne/San Feliu and Portixol areas with more interest in Sa Gerreria as an up and coming district.

Palma Surroundings & Son Vida

Last year due to increased demand, this Engel & Völkers property shop started offering selected long term rentals focusing on property in the exclusive Son Vida area. Monthly rentals start at 6,500 Euros for a house and 2,500 Euros for an apartment. To date, the majority of clients renting have wanted to try the lifestyle with their family before committing to purchase.

Mallorca Southwest

Due to the demand for deluxe rentals in this area for international clients the Engel & Völkers Luxury Collection Mallorca was launched last year as a new Holiday Rentals division of Engel & Völkers Mallorca Southwest. Offering a high level of personal service and featuring exclusive villas in top locations ranging from 5 – 7 bedrooms with swimming pool, large terraces for outside dining and entertaining plus a full range of additional services including personal concierge, private jet and yacht charter. Long term rental lets are also popular with clients who want to experience what it is like to live in Mallorca full time before they buy. Typically, contracts extend from 12 months – 2 years and prices start at 2,500 Euros per month for a house and 1,500 Euros per month for an apartment. These clients tend to focus on the property first and the area becomes a secondary concern, they demand quality furnishings and fittings with A/C and heating. The main overseas nationalities renting are from German speaking countries and some British. Popular areas for families are Palma, Portals and Santa Ponsa – all offer good infrastructure and a choice of international schools.

Mallorca West

In this area the demand is for high quality, private fincas for holiday summer rentals in the areas of Valldemossa and Deià and there is more interest in Sóller and Port Sóller in spring and autumn. Engel & Völkers offers long term rentals from 10,000 Euros per month for a house and clients are split between English and German speaking with increased interest from Scandinavians. As good rentals are in short supply, more owners are legalising their properties to achieve a good rental yield on the highly lucrative holiday rental market.

Mallorca North

This area offers both long and short holiday rentals. The holiday rental season starts from Easter – October and rental yields can be highly lucrative with the correct paperwork in place. Clients are more aware of the importance of renting with a reputable company that offers legalised property and adheres to the local government regulations to offer a high level of quality and facilities. Weekly prices for holiday lets vary from 2,000 – 6,000 Euros. Long term rentals start at 2,000 – 3,000 Euros per month. Last year, although the Engel & Völkers client mix was diverse, the majority of clients renting were British with more German and Swiss. The most requested properties were modern chalets and villas close to the beach, which is why North Coast areas are so popular.

Mallorca Central & South

According to Engel & Völkers, demand of rentals increased last year in the areas of Santa Maria and Llucmajor with fast connections to the airport and good infrastructure - ideal for couples and families who want to try the lifestyle before committing to full-time island life. In the south monthly rentals start at 1,500 Euros for a house and 1,200 Euros for an apartment. In the central area monthly rents increase from 2,000 Euros for a house and 1,200 Euros for an apartment. Rental clients are mainly German speaking looking for townhouses and fincas with land preferably with a swimming pool, garden and a good heating system. There’s a growing trend for owners to rent long term as they can see the capital growth of their investment growing whilst the property is occupied, earning an income and covering their overheads.