One of the main questions of the real estate sector in these challenging times is how COVID-19 will affect property prices. Engel & Völkers strongly believes that the value of property is set to remain stable and prices will be largely unaffected in the long-term consequences of the COVID-19 pandemic. Here are the reasons why:
The overall transaction volume of the real estate market in the Balearics is more than 4 billion euros. Since 2011 an average of 43% of the overall transaction volume was generated by international buyers. The importance of the real estate sector in the Balearic economy is clear: accounting for over 20% of the island's GDP, it is the main economic engine directly after tourism. Looking at past performance after the international economic crisis of 2008 demonstrates that the real estate sector (especially the second home market) largely remained "crisis resistant". While financial markets struggle with a high volatility, the average purchase prices of the real estate sector in the Balearics follow a healthy growth. Please have a look at this graph:
High demand and confidence in the market is illustrated by the good quality and quantity of internet requests for properties received during the state of alarm together with sales completed during the state of alarm: Engel & Völkers Mallorca achieved a sales transaction volume of more than 63 million euros - with an average sales value of 1.8 million euros. During the lockdown, areas such as Mallorca’s southwest for example, signed new option contracts with a total value of 22.4 million euros. These figures demonstrate that international buyers are continuing with their long-term investment plans during this challenging time. Furthermore, prices are holding especially for property in top locations and vendors are not rushing to sell.
According to The Balearic Islands Developers Association (PROINBA), the Balearic Islands have an accumulated deficit of over 15.000 housing units for the 1.1 M persons living permanently on the Balearics. The rhythm of production of new housing units over the past six years barely achieved 3.000 units/year. This is by far not enough for a population that has risen by over 40% since the year 2000 and highlights the continuous demand for new developments and housing in Mallorca. This situation, combined with the fact that Mallorca has extremely protected territory, means that plots are scarce and the high demand is pushing the market into reconverting buildings on existing plots. The Balearic Government recently passed a law to protect the environment and stop construction in undiscovered, rural areas in Mallorca - which will naturally bring along more interest in areas with an existing infrastructure.
Mallorca offers a quality lifestyle which is hard to beat. Besides its sunny climate Mallorca scores with excellent health, education, and sport facilities. It is a safe location with an infrastructure capable of supporting double the island's permanent population. The dream of owning a home in a naturally protected, and at the same time a sophisticated and cosmopolitan environment lives on and has been catalysed by COVID-19. It is clearly the first Mediteranean island that Europeans are longing to return to.
The vast majority of property owners in Mallorca’s most desirable locations are cash buyers. They have no rush to sell if the market is working against them and they prefer to rent before selling at a price which they consider too low. Engel & Völkers Mallorca recently observed that some clients are ready to pay extraordinary amounts in order to rent property in top locations in Mallorca.
Under the current circumstances with less available flights, vendors and buyers will be further apart. It is therefore inevitable that sales will slow down in the short-term. Regardless, we are confident that property here will continue to retain its long-term value. Engel & Völkers Mallorca has used this challenging period to invest a considerable amount of time and money into training our real estate agents, especially in how to use virtual tools to assist in the clients’ selection and buying process. Our teams look forward to seeing you back in Mallorca soon and to helping you to fulfill your dream of owning a property on this island paradise.
Contact us now:
Learn more about the real estate market in Mallorca and contact us via email at mallorca@engelvoelkers.com or by phone at +34 971 23 85 84.
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