Inflated Prices Drive Property Sales Down in Mallorca

Despite constant reports of improving Mallorca properties for sale, it seems the reality in the field is somewhat different as more and more Mallorca real estate agencies report drops in sales which have been constant since 2010.

The Balearic government has released the official figures for real estate sales on the islands and they show that there has been a 17% drop in sales in 2011 from the previous year with just 8,112 transactions being made. In comparison, the previous year there have been 9,784 and in 2007, the year of the property boom in Mallorca, 20,498 sales.

The reasons for such a steep drop are a conjunction of factors which have been affecting the entire country and indeed a greater part of Europe. First and foremost, the most cited reason for this decrease is the economic crisis which has seemed to hit investors and force them to cut their expenses.

Another reason presented by the local real estate agencies present as concerning is that house hunters offer on an average a 27% lower value than the asking price. The agents complain that home owners place their properties on the market at unrealistic prices which keep potential clients away and thus do nothing but deepen the real estate crisis. Furthermore, it seems they are willing to wait for unspecified periods of time without lowering the price in hopes of getting the most profit for their property and in hopes of a reinvigoration of the market.

However, all that this creates is a dangerous stagnation in the market which isn’t beneficial to anyone in the long run. On the other hand, the lack of supply in the segment of luxury holiday homes in coastal regions means that this select type of property is still performing at prices in the 2010 range. That’s good news for those who own such elite property, but it’s bad luck for those that have houses in less desirable regions.

The local government is the most affected by this stagnation because the money it used to receive from these transactions was an important source of revenue. In this aspect, there are a series of protective measures that have been adopted in an effort to revitalize the market, such as halving the VAT payable on new builds from 8% to 4%, a measure which is expected to remain in place for the duration of 2012.

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