House prices to pay the price

THE price of housing in Ibiza and Minorca could experience a fall of up to 20 percent in the next three years because of less demand caused by high prices and competition from other tourist areas of the Mediterranean, South America and the Caribbean, according to the Professor of Economic Theory at the University of Barcelona, Gonzalo Bernardos, author of a national report for the Forcadell estate agency. Bernardos said that this trend towards a freeze and even a fall in prices, shared broadly with the rest of Spain, is not so evident in Majorca. “The demand is showing another sort of development”, he said. He highlighted that the Germans, “who have recovered their buying power” still see Majorca as an attractive place to buy homes, mainly “because communications are very good”. On the other hand, he said, housing in Minorca for foreigners and Spaniards who are looking for a second home has to fight competition from “substitutes” such as Fortaleza, Salvador de Bahia (Brazil) and the Caribbean, areas which have ceased to be “selective destinations” thanks to the “improvement in communications and the fall in the price of air tickets”. “Minorca has attractions, but communications are worse and a house which costs 600'000 euros here, you can buy for 120'000 in these other places”, he said. The same is happening in Ibiza. “From the point of view of the tourist who wants to buy a home, there is greater competition.
If they want amusement, they can also get it in the beaches of Brazil or places such as Cartagena de Indias.
In addition to this, new destinations have arisen in Bulgaria, Romania and Croatia, which are interesting to those wishing to buy houses either to live there or for an investment”, said Bernardos, who estimates that, next year, the price of housing could fall by up to five percent in Ibiza and Minorca.
In his study, the Professor of Economic Theory cites other factors at national level which explain this change in the housing cycle and that are applicable to the situation in the Balearics.
He mentioned the “overbuilding” existing in the construction sector. In 2005 around 650'000 flats were built in Spain, of which less than half have been sold. This year, 800'000 new homes are expected to be built.
From the point of view of demand, Bernardos said that the thing stopping most purchasers was the existing level of prices.
In addition to this, he added, there is a noticeable deceleration in the amount of people coming to the capital to buy housing (a fall of 10 percent in the first half of 2005, according to the Bank of Spain) and growing difficulties for immigrants to Spain to buy houses with the existing banking conditions.