It is hard to argue that housing is not a fundamental human need. Decent, affordable housing should be a basic right for everybody in this country. The reason is simple: without stable shelter, everything else falls apart. ~ Matthew Desmond
There are few certainties in life. One of them is Mallorca holds a top ranking in real estate price levels, with continuously rising property prices and rents continuing to go up. While the industry often highlights these facts as a selling point to attract buyers and real estate agents, I believe that the side effects of this situation will eventually boomerang. The growing debate in our society, exacerbated by the coming economic crisis, causes many to rethink housing needs.
Housing on Mallorca #
Mallorca is an island with different microcosms, from rural and mountain areas and littoral zones with their villages and smaller towns to the vast Palma area which has gained even more importance during the last years thanks to an urbanization trend to be seen in all major cities in the world. Before looking into the specifics of each of these areas, let's first get the definition of what is affordable clear: Housing stops being affordable if 30 % or more of a person's income has to be spent on rent. Sound familiar?
Two Options for Buying Property #
Let's first look into the possibilities of buying property. Basically, there are two options:
- Buying into a new development. The most sought-after units are two-bedroom apartments with an average size of around 70 m² catering to the normal needs of a small family. Researching the offers currently available in the Palma area, then extending the search into the neighbourhoods outside the Via de Cintura, you will find a number of large new developments, not in the premium range, but of good quality, where the cheapest unit matching that description is available at approx. 350.000 €. Simple math: you have to have at least 30% of the listed price available in cash (20% equity and 10% for taxes); if all goes well the rest can be covered by a mortgage provided you meet your bank's requirements, i.e. having a stable job and meeting different other criteria like the 30% ratio of income/monthly payment, etc. In short, you have to call a minimum of 75,000€ your own to buy a new property. Mortgages at low interest rates can actually be obtained if you are willing to sign up for a lifelong duration.
- Buying a pre-owned home. This is typically the less expensive alternative though what is on the market has become rather thinned out, particularly when it comes to reformed properties. But even if you find the right kind of place, it seems that for a lot of people, and in particular first-time buyers with no 'Mum & Dad's Bank' to back them up, buying is not an option.
Market and Price Analysis #
In this article, I will focus on Palma, with its more than 600k habitants, and where to find affordable housing. This is a big issue. Given it is the place to be to find a job, have access to all the major services and be able to live the kind of lifestyle many people wish, I am convinced properties will be much in demand also in the future.
Exploring the market, doing a price analysis and getting a minimum number of clear reference prices is particularly difficult in the island's capital, and a lot of research and attention is needed before you can take a decision.
Just to give you a rough idea of the current price levels: New developments are priced from 3,500€ to 4,500€/m² with a large span of variation depending on location. Comparing a range of different properties on offer, I reached an average price for the Palma area of 3,138€/m² in May 2020 (HouseSpain).
Other data sources lead to an average listed price per unit of over than 500k€! Going through current offers listed on the same portal, I got to a stunning 3,700€/m².
- Please, consider that the prices listed are usually inflated by 10-20%. Antoni Gayá, president of the Association of Real Estate Services, even estimates there is a 20-30% gap between prices listed and selling prices.
- I’m personally not a big fan of calculating the cost of a property using “average prices per square meter,” at least not without doing an in-depth, thorough analysis of the market situation first. To include properties within a large price range means to compare homes in areas and with features that are totally different. A large part of what is on the market tends towards luxury and large buildings and is priced at more than 8,000 €/m², with an extra sea view premium of 30/40%.
- The inventory of properties priced under €300k is less than 25%. And those properties, in general, have construction and legal issues that might deter many buyers and renters. In Palma, there is no shortage of properties for wealthy people. Palma is the third most expensive city in Spain, reaching historical record prices exceeding 2008 levels. But this causes a downward pressure for people to satisfy housing needs and for employers to maintain realistic wages in a seasonal economy.
These economic and construction challenges amplify the affordability issue, marginalizing a growing segment of population, and creating a widening gap of market segments on the economic landscape. The average monthly salary spent on rent for low-to-mid priced houses (the affordable offer in the market is principally of low quality) has reached levels unaccessible for a large segment of middle income earners. Moving to suburbs to save money is an option restricted to many with lower incomes.
What To Do? #
Is there any other short term solution or possible action at least for the rental market?
I believe that innovation and technology could ease the pain for buyers and renters, addressing the trends and growing needs and of a large part of the population desiring an urban lifestyle, have all the opportunities of city life and be able to experience the vibe at cheaper prices with a maximum of services included, more flexibility, transparency and lower transaction costs.
Alternative forms of living also solve social issues like loneliness and bring like-minded people together. Co-living is a growing trend in cities worldwide. In the next article of this series, we will explain why it is a win-win proposition for both tenants and landlords and why we are working on this project. Palma is much more than a touristic place famous for its boats and beaches. It’s time for a transformation in this World Class City to attract and accommodate future generations.
#Mallorca #Majorca #Housing #Rents #Coliving #RealEstate
By Fabio De Gaspari
17 July, 2023