Trends in the real estate sector and its investment in the Balearic Islands

What is the current situation of the Balearic real estate market? Under what criteria is it governed and what are its fundamental trends today? We analyze it in the following article, exposing figures that support it.

The real estate sector is one of the main economic engines of the Balearic Islands. It is therefore of general interest to know the fundamental aspects of their situation and functioning on the islands. With this article we hope to provide you with the necessary information for this.

Demographics in the Balearic Islands

When it comes to being fully aware of the situation of the real estate sector in the Balearic Islands, it is also important to know aspects that influence it in one way or another. One of the most relevant is everything related to the demographics of the archipelago.

It should be noted that the Balearic Islands is the Spanish autonomous community that has experienced the highest population growth during the first half of 2019, according topublished data in Instituto Nacional de Estadística (INE).

Specifically, when these figures were published, the Balearic Islands had 1,198,576 inhabitants, which translates into 0.87% (10,356 people) more than at the beginning of the year. A growth mainly due to the arrival of foreign population and, to a lesser extent, of other autonomous communities.

Seasonal population

One of the most influential characteristics of the Balearic demography is the seasonal population, which becomes more palpable than ever in the summer months. For its measurement the so-called Human Pressure Index (HPI) is used.

According to Institut d’Estadística de les Illes Balears (IBESTAT), the maximum value of the HPI in 2019 took place on August 13, when a demographic load of 2,070,156 people was supported.

Economic situation

Another aspect to take into account to know in depth the Balearic real estate situation is to analyze the economic situation of its population.

2018 Consell Econòmic i Social de las Islas (CES) shows an appreciable drop in the purchasing power of citizens. And it is that both the per capita income and the GDP of the islands have experienced a notable decline in recent years.

Specifically, this report shows that per capita income has gone from being the second nationally in the year 2,000 to being the seventh in 2018. Those responsible for the CES have even come to foresee that, in a few years, this could be below the state average.

As far as GDP is concerned, in 2018 it grew by 2.7% in 2018, somewhat less than in the previous year, when its rise was approximately 4%.

The real estate market in the Balearic Islands

Transactions carried out

Focusing on the real estate business of the Balearic Islands itself, we can begin by studying in more depth the statistics of real estate transactions in the region.

We begin with the Índice Registral de Actividad Inmobiliaria of the College of Registrars of Spain, which states that:

  • The Balearic Islands is the second autonomous community with the highest real estate activity in Spain, with 13.41 sales per thousand inhabitants, only surpassed by the Valencian Community.
  • This is mainly a consequence of the acquisition of properties by foreign citizens with high purchasing power.

Transactions related to second-hand housing is the majority, which is mainly a consequence of the scarcity of developable land on the islands. In fact, according to theServei d’Informació Territorial de la Comunitat Autònoma, Ibiza will exhaust its buildable land in 12 years.

House prices in the Balearic Islands

The Balearic Islands is the Spanish region in which the price of housing has risen the most in the first quarter of 2020, as shown in the quarterly sales price reportof piso.com portal.

This rise has been 1.68%, reaching a value of 3,165 euros per square meter. The year-on-year increase was 8.32%, also the highest in Spain. The Balearic Islands was the most expensive community in the country, just ahead of the Basque Country, which has a price of 2,720 euros per square meter.

Rental status

As far as the rental situation is concerned, its price is also very high, which has even caused complaints from institutions such as the Spanish Association of Geographers (AGE)

Regarding the type of rental, experts in the sector affirm that owners prefer short-term rentals (tourist rental) compared to renting for full years, since this guarantees to recover the property sooner, especially if problems arise with the tenants.

Second home acquisition by foreigners

The Balearic Islands is the second autonomous community in home buying by foreigners, only advanced by the Valencian Community. Data for the second quarter of 2019 obtained from the INE, which tells us that 32.37% of home purchases by foreigners have taken place on the islands.

To distinguish the purchase of homes according to nationality, we turn to the data for the fourth quarter of 2019 from the College of Property Registrars, where the highest proportion of home purchases by foreigners correspond to:

  • 14.23% are British
  • 7.99% French
  • 7.76% Germans

If we study foreign investment in housing per square meter, according to the General Council of Notaries:

  • Those from the United States, Denmark, Sweden, Switzerland and Germany are paying an average of € 2,000 / m2
  • Russians, Norwegians and Italians follow closely behind.
  • The national average is € 1,687 / m2.

Some legal aspects

From a regulatory point of view, it should be noted that the Balearic Government intends to eliminate “express” visas for non-EU citizens who invest in real estate worth at least 500,000 euros, the so-called “gold visas”.

Influence of COVID-19

The real estate market, how could it be otherwise, has also been affected by the new global pandemic. As a consequence, the following changes are sensed:

  • Temporary paralysis of transactions and their remote boom, especially internationally.
  • Good time for the purchase / sale of homes, especially in the luxury housing sector, since financial instability makes many investors turn to the real estate market and large fortunes will continue to invest.
  • Generalized price drop, but not so much in the luxury sector.
  • Recovery will be faster than during the 2008 crisis.

We can conclude by saying that there are several reasons that translate into opportunities for the Balearic real estate market. We can summarize these in a growing population, especially in summer time and by foreigners, and the high real estate activity.

The high activity of foreign buyers is striking, especially those with high purchasing power, who are not inconvenienced by the Balearic house prices, the highest in Spain.

It should also be noted that from an obviously negative situation, such as that caused by the coronavirus, valuable opportunities can also be extracted for the real estate sector if it is properly focused.

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