Palma is the Spanish city where real estate investment is most productive, with a price growth of 16 percent in the last quarter of 2017 compared to the same period of 2016.

A recent study compares the evolution of prices in Barcelona, Madrid, Palma, Malaga and Valencia and notes that Palma is taking over from Madrid and Barcelona in terms of profitability.The demand for real estate products by foreigners in the Balearic Islands is booming, not in vain the investment of residents from outside Spain represented in 2017 almost half of the total expenditure on registered housing.

Mallorca is considered a leading destination to invest in a second home. Buyers value the infrastructure, security, services and entertainment offered by the island, so many foreigners who acquire a residence in Mallorca often spend long periods, even out of high season.

This boom in demand has led to an increase in prices. The southwest of the island (Andratx and Calvià) and the Palma urbanization of Son Vida are the areas where the luxury home recorded the highest price increases. The average cost of the villas in Port d’Andratx reached 4.5 million euros.
This situation has led to the municipalities of Mallorca becoming increasingly wealthy and climb positions in the list of Spanish populations whose inhabitants declare the highest rents thanks to: a more dynamic economy hand in hand with the tourist boost, employment growth without comparison in other autonomies, and a very strong foreign investment to acquire a property on the island.

We must remember that according to the data of the Government of the Balearic Islands, after growing the economy of the islands by 0.3% in 2013 and 1% in 2014, in 2015 this rate rose to 3%, showing a boost higher than the state. As a reference, in 2016 it reached 4.1% and the estimate is that 2017 closed at 3.8%.

The second key element has been the reactivation of the labor market. Although in 2015 island salaries did not show significant increases, the number of people with a job did increase, which allowed raising the money in circulation. And the third factor is the strong foreign investment that has occurred in recent years in the real estate market of the archipelago, and especially in some municipalities, with the acquisition of high value real estate and income of high income population. Real estate investment companies have found in the strong growth of the tourism sector one of the best investment fields, which is why many of these socimis have set their sights on Mallorca.

In Ripoll & Mateu we work to get total satisfaction of our customers effectively by offering legal services and personalized assistance in civil matters, obligations and contracts of all kinds.Foreign investment area offers legal assistance with regard to funds from other countries for investments in real estate and commercial Islands.

The Council of Ministers recently approved the Real Estate Credit Bill which aims to reduce the costs associated with changes in mortgage contracts and strengthen transparency in property purchase processes.

The proposed regulation lowers the commissions for early cancellation of variable rate loans until they are eliminated after five years of the contract’s validity. The variable to fixed rate conversion will not pay commission from the third year and the fees and notary fees will be reduced.

The reduction of the commissions contemplated by the norm approved by the Council of Ministers focuses on the early cancellation operations and the conversion of fixed-rate contracts. In the case of the cancellation fee, the new percentages apply to mortgages signed after the new Law came into effect, while those relating to the conversion of variables to fixed mortgages affect the mortgage contracts that are currently active.

The cancellation fee for variable-rate loans will be zero as of the fifth or third year of the contract’s validity, depending on what was agreed: in the first case (five years), the limit will be 0.25 per 100 of the capital paid in advance; in the second (three years) it will be 0.50 percent. In the case of variable rates, the maximum percentages that the Bill establishes will be 4% of the anticipated amount if this is done in the first ten years and of 3% if it is later. At present, there is no legal limit for fixed rate loans.

In general, the so-called linked sales are prohibited, that is, those that oblige the consumer to accept a series of financial products as a condition for obtaining the mortgage. In addition, in order to start the execution of a mortgage loan, there must have been nine monthly defaults or 2% of the capital granted during the first half of the life of the loan.

The improvement of transparency is one of the pillars of the new Real Estate Credit Law. In the pre-contractual phase, the bank must deliver to the client, at least seven days before signing the contract, detailed documentation on:

• Binding offer for the entity
• Existence of potentially sensitive clauses
• Centers of evolution of quotas based on forecasts on interest rates
• Associated insurance

 
During those seven days prior to the signing of the contract, the notary will advise free of charge and verify through the minutes that the consumer has received and understands the legal and economic consequences of the contract he is going to sign. This is a necessary condition for the notary to authorize the deed.

The norm is in the hands of the Congress to initiate the parliamentary procedure and counts on a wide political consensus.

The news related to the tourist rental in the Balearic Islands doesn’t stop happening, in the last days the most repeated word in this regard has been “zoning”. Recently, the “Consell de Mallorca” has announced the implementation of this zoning action that will limit to 60 days a year the tourist rental in plurifamiliares and unifamiliares that are main dwelling in a total of 36 coastal and interior urban cores classified as saturated.

The Balearic Government approved last year the law of tourist rental in the Balearic Islands and a moratorium of one year, valid until August 1, so that the insular councils and the City Council of Palma approve each one according to their criteria and interests in which areas you can rent houses to tourists, either single-family or multi-family.

Until this zoning is approved in a definitive manner, only those homes that already have a license can be rented to tourists, among which there is no Balearic apartment, although it is a highly demanded modality in recent years.
In the case of the coast of Mallorca, the municipalities of Palmanova, Magaluf, Santa Ponça and Peguera are considered saturated. The area of Playa de Palma that belongs to Llucmajor also has the qualification of “saturated”: Bellavista, Cala Blava, Son Verí Nuevo and El Arenal.
In the case of the interior municipalities we find: Alcúdia, Randa (Algaida), Ariany, Banyalfubar, Port des Canonge (Banyalfubar), Orient (Bunyola), Ullaró (Campanet), Deià, Llucalcari (Deià), S’Empeltada and Ses Coves (Deià), S’Eglaieta (Esporles), Estellenç, Es Carritxó (Felanitx), Fornalutx, Marratxinet (Marratxí), Pollença, Es Vilà (Pollença), Es Vilà and La Font (Pollença), Santanyí, Llombards (Santanyí) and Ruberts (Sencelles).
In order to determine the “saturated” interior nuclei, indicators such as the incidence of vacation rental on infrastructures or how the identity of a municipality may be affected if the number of tourists drastically increases has been taken into account..

Ses Salines, Sóller, Biniaratx and L’Horta (Sóller), Valldemossa, Es Port, S’Arxiduc and Son Ferrandell de Valldemossa have also been included in this category.In the protected rustic land and in the so-called exclusion zones, no holiday rental will be allowed. In those classified as “unsaturated” for example Sineu, Manacor or Inca, renting properties allows unrestricted tourists 365 days a year nuclei.

It’s, without any doubt, a measure that has not been exempt from controversy, and discordant voices have already been raised about it. The Federation of Small and Medium Enterprises of Mallorca (Pimem) considers zoning to be “a direct attack” on small self-employed workers and SMEs, while at the same time defending “equal opportunities in the business world”.

If you wish to receive more information about the Tourism Law of the Balearic Islands as well as the recent zoning process, do not hesitate to contact us. Our team of professionals will solve all your doubts and advise you in the most effective way.

The year 2017 stands out for two fundamental facts: the acceleration of demand and housing prices throughout the country. The growth in the number of sales is revealed through four premises:

• The closing of buying and selling operations during the first half of the year, becoming the highest figure since 2008. In the last quarter of 2017, 117,068 free home purchase transactions were registered, which added to the total recorded in the year 491,005 operations, 17 percent more than in 2016.
• These same operations have registered an interannual growth of almost 17%.
• The sale of new construction housing has rebounded up to an interannual rate of 5%.
• Prices have experienced an annual increase of 7.7%.

Aspects that have favored the growth in housing demand:

• The reflection of economic growth in the labor market which has led to a decrease in the unemployment rate.
• The low level of inflation allows cheap financing maintaining the current interest rates. The granting of new mortgages continues to grow at a good pace, with significant monthly fluctuations, but with an annual accumulation of 11% that could make us end the year in the vicinity of the 315,000 mortgages granted.
• The profitability of investment in housing; low interest rates and short and medium term fixed income boost the demand for housing as well as investment property.

The general feeling of the national and international real estate sector regarding these increases is highly positive. If the current cycle maintains its actions as it did in the past, we can expect a few years of growth of the real estate market in Spain.

Causes that have led to rising housing prices in Spain:

According to the latest statistics of the Association of Spanish Notaries, residential properties have increased their sales by more than 8% during the year prior to last September. In addition, the prices of these properties have risen 2.4% during that same period of time.

• Shortage of real estate offer, mainly in “Premium” areas.
• The upward trend of the large capitals that set the tone for the real estate market at the national level. Prices have grown in a widespread way throughout Spain, but we still have to talk about two speeds. The big markets with the two archipelagos and the capitals of Madrid, Barcelona, Malaga and Valencia are pushing prices up. However, in many areas of the interior of the country it is still difficult to maintain that pace.
  If something differentiates the current situation from what was experienced in the real estate boom, it is the so unequal behavior of prices. Mallorca, stands out significantly from the rest of Spain with an increase of 29.1% in the last year. Balearics has been one of the hot markets of the year with increases at the provincial and autonomous community level of 25%.
• The increase in rents in the rental of long-term housing due, in large part, to the profitability of tourist rental. The Balearic Islands, with an average price of 12.89 euros per square meter per month, is one of the provinces with the highest rents, only behind Barcelona, Madrid and San Sebastián. 22% of Spaniards live on a rental basis. It is expected that in the next year the number of rental operations will increase with respect to the sale. The price of rents in the last three years has risen more than that of property owned.
• The average price of finished housing (new and used) in Spain reached € 1,264 / m2 in the fourth quarter of 2017, 4.2% more than in the same period of 2016, according to data from the appraisals made by the real estate valuation company. The most striking change compared to the previous quarter is the slowdown of the market in Catalonia, where the average price has gone from growing 12.5% year-on-year in the third quarter to 8.9% in the fourth, while in the Community of Madrid rhythm has increased from 13.2% to 15.1% in the fourth quarter.

In the Balearics, the price of second-hand housing has experienced a rise of 25.3% during the year 2017 to stand at 2,472 euros / m2. The biggest increase was in Palma, where homeowners have increased the price of their homes by 29.1%, which represents the biggest increase experienced by a Spanish capital in the last year.

Situation of the new construction market:

The stock of new construction housing accumulated between 2008 and 2014 led to mark a historical minimum of the sale of this type of property in 2016. The new conjuncture during 2017 and the forecasts for 2018 estimate that:

• The visas for the construction of new construction accumulate an interannual increase of 20% and a reactivation of the new promotions is expected in 2018.
• The prices of urban land continue in an upward trend leading to an increase in investment.
• The current situation leads to an increase in activity and competition among promoters and have good prospects for construction in the short and medium term.
• In inter-annual terms, the granting of permits to start new works grew by 83.8% and 32.4%, respectively. In the first half of the year, the signing of visas was 24.4% higher than in the same period of 2016.

The Spanish property market is accelerating its recovery phase in terms of demand, investment and prices. Residential demand will reach a volume close to 550,000 homes in 2018, driven by improved employment and favorable financing conditions. Everything indicates that during 2018 the real estate market will continue its positive evolution, with increases in the number of transactions and the granting of mortgages, and with a probable rise in prices due to the scarcity of new construction products in large cities. The growth of the real estate sector, together with the increase in confidence on the part of investors and their search for profitability, have led to an increase in the possibilities of investment in the sector.

Real estate market trends for 2018:

• The reactivation of the economy and low interest rates are causing a rise in the real estate sector.
• The increase in prices leads to an increase in the valuations of the assets and, consequently, an increase in the demand of investors.
• The new Mortgage Law will be a true turning point for the financial system, given that its articles introduce measures that will result in greater security and transparency.
• Prices will continue their growth rate during 2018 and the barrier of 500,000 operations will be overcome.
• Investment in construction slowed down in the third quarter of 2017, but its quarterly evolution is very volatile and this slowdown is not significant, its trend shows a high level of dynamism, and by 2018 significant growth is expected.

If you intend to purchase a property in Majorca from a foreign country like England or Germany, you should consider that both the jurisdiction and the processes to be carried out and the roles of professionals involved in it are different.

Throughout the whole process, the presence of a lawyer is essential to be responsible for providing obligatory advice to clients on legal, tax and legal liabilities acquired during the action of sale.

Ripoll&Mateu can fully assist you in the buying process

Summary of the correct way to tax for single-family homes with valid or provisional license registered in the Ministry of Tourism of the Balearic Government.

First, we must consider that the rent and sale of housing is in principle exempt from VAT. However, section “e'” of article 20.1.23ºb of the LIVA establishes that this exemption will not be effective in the case of leases of apartments or furnished homes when the lessor is obliged to provide any of the complementary services of the hotel industry, such as restaurant, cleaning, laundry or other similar. In these cases, the person who gives the house to the user has the obligation to issue VAT invoice, even if only one is the service provided.

The aspects to consider are the following:

• -You must make the quarterly VAT declaration at 10%.
• – You can deduct all direct expenses of the property such as: IBI, garbage, supplies, insurance, community expenses and real estate commission
• -You must invoice the final customer with an IVA of 10%.
• -The real estate or intermediary company charges its commission plus 21% VAT.
• -The owner must not make model 130.
• -The owner must declare the annual benefit in the section: Real estate capital yields of his annual income
  – It is not necessary to register in finance under the heading: Leases of business premises.

At Ripoll & Mateu Solicitors Mallorca we advise, defend and represent our clients at all levels. Our greatest asset is an infrastructure of professional leaders in each field of action, especially Real Estate and Tax and Tourism Law   as well as our international vocation and multilingual capacity.

Our team is committed to providing the best work processes to provide our customers with the best results, in a constant quest for professional excellence. We establish external collaboration when circumstances require and are firmly committed to transparency and honesty in our actions.