Below Anke Köhler will give a possible assessment of Mallorca’s real estate market in 2020, after the shutdown.
Personal assessment
Many owners and prospective buyers have asked me for my evaluation of the real estate market over the past seven weeks. Trigger for the uncertainty is the complete shutdown in Spain and thus also in Mallorca.
Today I try to give a subjective forecast of how it could possibly be. I have researched numerous expert opinions in recent weeks regarding the economic consequences from Germany and Spain. In addition, I have made many telephone calls with prospective buyers and owners, which lead me to the following conclusions.
Influencing factors
My assessment of the property market in Mallorca is influenced by two factors:
- The economy in Germany, Austria, Switzerland and Spain is starting up again
- Travel restrictions in Europe are lifted
If these two scenarios occur, I assume the following possible developments:
There is demand for real estate and this is good information for real estate sellers. In my opinion, the market will be divided into four segments in this regard.
Market segmentation
- Luxury real estate (from 1 million upwards)
- Upper middle segment between 600,000 and 1 million euros
- middle segment between 300,000 – 600,000 euros and
- Market below 300,000 euros
Each segment may develop slightly differently.
Luxury real estate from 1 million euros upwards
This could lead to an increase in demand. This group of people has the capital to invest. Therefore there is also an increased risk of inflation, currency reform, bank failures and negative interest rates. The available capital would thus be safer invested in a property.
The situation could lead to a further restriction of the already limited supply. One or the other seller could possibly withdraw his intention to sell.
Upper middle segment between 600,000 euros and 1 million euros
For this group, a similar development to the one mentioned above would be possible. There are also clear winners of the crisis, such as transport companies, the IT industry (keyword: digitalisation) and online trade, etc. With a real estate investment, these companies would have the opportunity to protect their capital from the risks that might be expected.
The supply could increase slightly, because one or the other owner might need liquidity for his company or for private purposes.
This category also includes many properties with holiday rental licenses. The income from holiday rentals will probably tend to zero this year in Mallorca. As a result, owners who service a mortgage annuity from the rental income could face liquidity problems. They might then see an advantage in selling their property.
Middle segment between 300,000 € and 600,000 €
This could lead to a decline in demand. The broad middle class of the European economy has been hit hard by the shutdown. Existing capital could be needed to save their own companies.
A decline in demand could lead to falling prices. Owners who now really want to sell urgently could be more willing to negotiate as before the Corona crisis.
Real estate under 300,000 euros
Based on my many years of experience in the real estate sector, I could imagine that there would be a not inconsiderable slump in demand here. Additional properties would come onto the market when sellers need liquidity for their lives or their business. In order to restore their own solvency, it is with a heavy heart that they part with their second or holiday property. In the market economy, greater supply and falling demand leads to falling prices.
Possibly the already mentioned risks of inflation, currency reform, bank failures and negative interest rates will motivate those who are little or not at all affected by the Covid crisis to invest in real estate. Next to gold and precious stones, real estate is one of the safest investments.
The real estate market is also subject to fluctuations, as we are currently observing here, but it is by far not as volatile as the stock market and there has never been a total loss for real estate.
In the event that you have decided to invest in real estate, Mallorca offers lucrative investments with fantastic properties. The island has lost nothing of its beauty, attractiveness, diversity and quality of life due to the crisis. On the contrary, the situation will contribute to more sustainability in all areas.
Here I finish my assessment. In this sense: come well “through the abating storm” and we look forward to seeing you again soon here in Mallorca!
Yours Anke Köhler, 01. May 2020