COVID-19 has hit the property market that had managed to recover from the crisis of 2009.
With some consequences yet to be determined (the Bank of Spain calculates that the economy will fall this year by up to 13%), dark clouds are hitting the skies again. Mallorca is facing this recession and property prices during and after Covid-19 could be subject to a significant drop, referring to prices in both the national and Balearic Islands property markets, the experts predict that the crisis will cause a drop in prices in the market in general.
What will happen to the new developments in Palma de Mallorca and the rest of Spain, as well as re-sale properties?
There are all kinds of opinions however, the report ‘Consequences of COVID-19 in Real Estate’ carried out by the consultancy group Gloval proposes three scenarios:
- Growth in ‘V’: a rapid economic recovery in which there would be a drop in price of the square metre to 1.94% in nine months and 1.39% in six.
- Growth in ‘U’: the management of the pandemic would last three quarters of the year. The price could suffer a drop of 4.42% in nine months from 2.72% in six.
- Growth in ‘L’: a shock that could lead to a drop of 8.11% in the price of the square metre in nine months from 6.47% in six. A situation very similar to that of 2009, when housing prices fell by 9%.
The Gloval Analytics study concludes that low demand and the lack of foreign clients and investment can cause sales to suffer a significant drop in the worst of yearly quarters. On the other hand, the supply of property listings for sale will grow in the coming months, since many owners with economic difficulties will be forced to part with them and others who were thinking of acquiring one will postpone their decision.
All this will benefit the drop in prices in both the sales and rental markets, at least until the situation balances again, but not before mid 2021 experts say. Prices can fall more than 16% With the building work and the real estate sector idling, transactions closed during these weeks are practically symbolic. A fall that, together with the economic recession caused by coronavirus, can cause the sale of homes in Spain to collapse practically by half (46.8% less) by the end of 2020 and that prices will drop an average of 16,5%.
This is pointed out by the ‘Real Estate Business School’ Heart Rate Monitor; it adds that eleven communities, including Madrid and Barcelona, can see how their properties are being devalued by up to 25%. Other more conservative real estate agents predict price drops of around 10%. The Covid-19 crisis will cause a drop in prices in the purchase of properties and on the rental market.
The property market in the Balearic Islands before the crisis
According to Tinsa, during the first quarter of 2020, the average house price in Spain rose by 2.5% (€ 1,383 / m2). There were fourteen consecutive quarters of growth, with a revaluation of 15.5% above the post-crisis historical minimum and 32.5% below the maximum. The Balearic Islands were also in good health before the crisis. From January to March 2020, it was the fourth community with the highest year to year variation (6.2%), 23.8% more than its historical minimum and 15.7% below the maximum. At the provincial level, it was the sixth with the highest price increase and the third with the most expensive square metre prices (€ 2,301 / m2), behind Guipúzcoa (€ 2,453 / m2) and Madrid (€ 2,399 / m2).
This means that Mallorca’s property prices won’t be affected on the same scale like in the big cities Madrid or Barcelona, and some premium areas or properties might be minimally affected only by individual cases of property sellers who were open for price reductions even before this crisis. Year-on-year evolution of the average price in the Spanish capitals This boom in the islands was reflected in the capital. The average price of Real Estate in Palma de Mallorca experienced an increase of 7.6% (2,257 € / m2) in the first quarter, making it one of the capitals most valued since its lows (43.1%) and one of the most expensive next to San Sebastián (€ 3,602 / m2), Barcelona (€ 3,335 / m2) and Madrid (€ 3,033 / m2). This revaluation made the Balearic Islands the province that required the greatest financial effort (30.8%) to pay a mortgage at the end of March (estimated at 188,957 Euros on average). The mortgage fee needed to buy a home was also the highest, 816 Euros compared to the national average of 585.
What will happen to the property market in the coming months?
According to Tinsa, at the end of 2019, the Balearic Islands was the fifth province with the most new construction permits for every 1,000 homes (6.3) and one of the most registered markets on average (25.8 transactions for every 1,000 homes). An optimistic climate that has been suspended with the arrival of the coronavirus: “The duration and, therefore, intensity of this exceptional situation will mark the future evolution of the property market. The effects on supply, demand and prices will nevertheless be sufficiently significant”.