The Balearic Islands are an archipelago of Spain situated on the western Mediterranean Sea near the eastern coast of the Iberian Peninsula. The area is most closely associated with the islands of Majorca (often referred to as Mallorca) and Ibiza although Menorca is also fairly prominent. These are all extremely popular tourist attractions and a luxury destination for high net worth individuals and international property investors. However, there are also many other smaller islands that tend to get overlooked with less well-developed property markets.
Property in Ibiza
If you are looking to buy property in the Balearics and you are looking towards the luxury end of the market then Ibiza will be extremely prominent. Ibiza has a population of just 150,000 people but a property market that is often compared to London with regards to luxury and expense. There are many different areas of the island where it is impossible to find mid-range properties with the vast majority priced towards the higher end with many valued at upwards of €6 million (some in the tens of millions of euros). The general rental value of properties in the Balearics varies between €2200 per square metre and €8300 per square metre. It will be no surprise to learn that Ibiza is dominated by prices often way above the top end of the range.
Property in Majorca
The island of Majorca has a population of around 850,000 and the broadest spread of property prices and types across the main three Balearic Islands. The area itself is dominated by tourism with 27.9 million visitors in 2017 alone and ever-growing interest from German, British, Scandinavian and Russian real estate investors. Property prices in Majorca can vary widely from around €6250 per square metre up to in excess of €10,000 per square metre. Over the last decade, there has been a significant reduction in the number of newbuilds in the Balearics, falling from over 12,000 just 10 years ago to 1,842. This has had a major impact upon the availability of stock and many people are now looking to refurbish their Majorca properties instead of upscaling.
Mortgages for Balearic island properties
There is no doubt that domestic Spanish mortgage providers are still feeling the effects of the 2008 financial crisis which decimated many of their balance sheets. As a consequence, while they are fairly active in the traditional mortgage market, Spanish banks are not so interested in high net worth property investors. There is also the issue of repossessed properties to consider, many of which are still on the balance sheets of Spain’s leading banks. Until these positions are unwound, balance sheets restored to former strength, and a stronger recovery in the Spanish economy, they are unlikely to increase their risk profile towards the luxury end of the property market.
This has opened up a very interesting opportunity for Enness as we have contacts right across the worldwide high-end mortgage sector. Our independent status means we can liaise and transact with anybody in the marketplace and we have built up some extremely strong and fruitful relationships.
Structuring Balearic island mortgage finance
As the likes of Ibiza and Majorca have extremely active property markets towards the higher end of the price range, there is a growing demand for international mortgage finance. We have access to private banks and international mortgage providers who take a very different approach to the luxury property market than their Spanish counterparts. While many Spanish banks are reluctant to utilise the full wealth and assets of our high net worth clients, others are more than willing to accept various types of assets as collateral. This is vital when looking to minimise costs, maximise assets and arrange mortgage finance as quickly as possible. Some of the key Balearic island mortgage product highlights include:-
- LTV ratios up to 70%
- Headline mortgage rate as low as EURIBOR +1 with the option to fix rates in the longer term
- Equity release option with 50% assets under management or a slightly higher headline interest rate
As a rule of thumb, the level of property taxes and charges specific to the Spanish property market average around 10% of the purchase price. There is also the need to consider residency issues, how this may impact your tax situation not to mention the requirement for various types of property insurance under Spanish laws. Unfortunately, a number of overseas investors automatically assume the tax situation in Spain will be like-for-like compared to their homeland. In the majority of situations, this is not the case.
Tax planning and securing finance
It is vital that all mortgage finance is secured in both a tax-efficient and a cost-effective manner. We appreciate the intricacies of the Spanish tax system, we have contacts who will advise us of the latest changes, and we can utilise your full portfolio of worldwide assets to reduce headline mortgage costs. Our access to private banks and other similar facilities gives us the option to create a specific mortgage vehicle structured around your unique situation. This is very different from the domestic banking scene which is currently very risk-averse especially when it comes to luxury properties and international property investors.
Spanish property market
Many people are comparing the Ibiza luxury property market to that in London with the Majorca property market still towards the higher end but offering a wider range of properties. The mainland Spanish property market is continuing to recover but there are still many repossessed stocks held by domestic banks slowly being drip-fed back into the marketplace. On the flip side of the coin, the Ibiza property market is booming, international investors continue to flow to the Balearic Islands and there is strong and growing demand towards the higher end of the market.
Call us today to discuss your plans
If you are looking at one of the Balearic Islands as your second home/holiday home or perhaps as an addition to your international property portfolio, we are sure we can help. We have access to the full range of international mortgage financiers and private banks. Our products tend to be structured around a client’s specific needs as opposed to off-the-shelf packages. This ensures that the cost of finances is as low as possible, you are able to utilise any worldwide assets you hold and because we know who to approach and what they need, mortgage finance decisions tend to be made fairly quickly.
So, why not call one of our experts today for a no-obligation chat about your plans for the future and how we can work together to fulfil these.
