According to the most recent reports from the CEPREDE – the Spanish Economic Prediction Center, the year 2018 will close with a 2.7% economical growth in the Balearic Islands. This is one tenth above the 2.6% national average.

The same circumstances are predicted for 2019 but with slight lower numbers. Still above European levels, Spain’s economic growth remains positive, but is loosing strength – the economy is expected to keep growing, but at a slower pace: 2,4% national average and 2,5% specifically in the Balearic Islands. Also with 2,5% we can find Aragon, Basque Country and Madrid and the most economically dynamic regions in Spain should be Comunidad Valenciana (2,6%), Andalucía (2,7%) and Murcia  standing out with 3%.

The slowdown in tourism will affect mainly the regions of Catalonia, Canary and Balearic Islands, this being the main cause of the general weak growth in the services sector.

In the industry sector a slowdown is also noticeable in exports of plastic and oil-based products.

The construction sector was the one that suffered the most from the crisis and also the one that took longer to recover from it. Although it was one of the sectors whose growth stood out in 2018, it will also moderate its growth in 2019, especially in the Balearic islands, where there seems to be a more intense deceleration in employment growth in this sector.

The general annual unemployment rate of the Balearic islands will close 2018 at 11.9% and should remain at the same level in 2019.

External factors for this loss of speed in the economic growth, seem to include international trade restrictions as well as the recovery in oil prices. Furthermore, the uncertainty caused by Brexit and the foreseeable rise in interest rates, and the effect this can have on household consumption and business investment.

As for internal factors, the increase of taxes on the autonomous community budget, which is in itself bad news, but even more so if the revenue from it is destined for current spending instead of boosting the Balearic economy allocating resources to productive investment.

In any case, it is important to highlight the reactivation of the real estate market of the Balearic Islands and the significant investment in household improvements during 2018, which was 8% more than the national average. This investment was done mainly for renovations and maintenance works to guarantee properties’ good conditions. Property owners in the Balearic Islands seem to be more and more committed to improving the comfort and/or the aesthetics of their homes or as an investment to obtain more benefits when selling or renting their property. In fact, the price of housing in the Balearic Islands increased by 7% in the third quarter of 2018 compared to the same period last year.

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Following the financial and economic crisis in Spain caused by the residential real estate bubble (which saw property prices in the country rise 200% from 1996 to 2007) the real estate market slowed down, and logically, as a result of the decrease in demand for buying houses, there was an increase in the demand for renting houses..

Overtime, this situation lead to a concerning rise in rental prices to a point that long term rental prices got too close to touristic rental prices.

According to real estate reports from 2018, throughout Spain, house selling prices will have increased 11% and the number of house sales 23% by the end of the year. In the Balearic Islands and more so in Mallorca, 2018 was definitely well-marked by the increase in both indicators and the tendency for 2019 is that this positive trend will continue in supply, as well as in demand and prices, probably reaching a peak during 2019 and starting to slowly decrease towards 2020.

Although banks have been cautious granting new mortgages, also to avoid a new real estate bubble, the truth is that financing costs are not too high at the moment, job market is stable and with a boost in consumer confidence, buying a house is extremely appealing as an investment, so it all indicates that the real estate market will continue to grow until 2020 or until the moment when financial effort reaches its limit. This is due to the fact that the cost of buying a house has increased around 6% during last year whilst salaries not even 1%.

There are no signs that a new crisis will surprise Spain, the country’s economic growth is not based on this real estate favourable period, but on exports and capital goods investment. Therefore, experts in this sector guarantee that now is a good moment to invest again in real estate, especially in new residential areas.

Regarding foreign investment, the Balearic islands have been gradually extending the multitude of international buyers, who take advantage of strong tourism numbers and significant infrastructure improvements over the past few years. The island’s tourism growth caused the need for legislative and infrastructure improvements that came to reinforce the already well established residential property market. 

Nowadays, the luxury property market is really strong in the islands and it keeps drawing the interest of wealthy investors from Germany, Switzerland, Austria, Scandinavia, Britain, etc., so in this sector the expectations for 2019 are also of continuous growth.

Specifically about British investors, Brexit did initially cast a shadow on the continuous growth of the real estate market (both house sales and touristic rentals) in the Balearic Islands, as it is undeniable that British nationals are important real estate investors in the islands and the largest represented foreign nation in Balearic tourism statistics. However during the last 2 years since the Brexit vote, British numbers in the islands have not decreased and in fact some say that house sales to British people might actually increase before Brexit is definitely in place – reason to say that British buyers are undeterred by Brexit.

 

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