Don’t panic the Mallorca property market is not in meltdown.

Reports of the markets demise are exaggerated - but some British investors could still lose out, says MARK STUCKLIN.

What sparked the recent slew of doom-laden headlines was not the housing market going into freefall, but a fall in the Spanish stock market as jittery investors dumped construction stocks in April.

Shareholders reassessed the outlook for the property market, which is largely a domestic one, catering for Spanish buyers of primary residences. Share prices have been bullish for the past three years, but, despite the booming economy, rising interest rates and evidence of a housing slowdown triggered a correction.

According to figures released by the Spanish housing ministry, average property prices rose by 9.1% during 2006, down from 12.8% in 2005 and from almost 20% annual growth in the couple of years before that. So, a market that was boiling a couple of years ago is becoming tepid. Spanish Land Register figures reveal that overall house transactions fell by 7.5% in 2006 and, for two or three years now, there has been plenty of anecdotal evidence suggesting stagnant or falling markets in some of the areas popular with Britons.

So with the good times seemingly over, what does this all mean if you own a holiday home in Spain, or want to buy one? The biggest losers are short-term speculators who overextended to buy off-plan in the final years of the boom, thinking they could “flip” it and make a profit. In the same boat are those who have bought an average property in an overdeveloped area in the past three years, and anyone who didn’t do their homework and paid over the odds.

Losses may become more widespread if Spain goes into a construction-led recession. This is not impossible, given the extent to which its economic growth depends on the housing sector. A recession would hit domestic demand for holiday homes hard, pushing prices down. Even so, good-quality properties with foreign appeal would probably get off lightly, and the market would recover in due course.

Any Briton who bought an attractive property in a good area five years ago or more should not worry. Good capital growth means these properties should still fetch a reasonable return were you to sell now.

If you are really willing to do your homework, the market wobble could be a good time to hunt for a bargain – and now is the best time in a decade to drive a hard deal. Remember, smart buyers look at whether or not a property represents value for money, not just how cheap it is. This leaves a complex situation involving different regional markets.


MALLORCA


Prices here are comparatively high, but buyers are affluent and there is a large stock of high-end properties. In a rare display of enlightened thinking, the island’s planners banned development for a couple of years; it resumed in May 2004.

The market has cooled in resorts, but growth is still running at about 12%. A traditional village house inland, for example, would cost £225,000, compared to £177,000 two years ago.


SOURCE: Author Mark Stucklin