The luxury residential market in the Balearics is one of the region’s key economic drivers. Although so far this year purchases by foreign investors are down by 30%, this remains an exclusive and expanding segment, with buyers available for all properties placed on the market.
What are the trends in the luxury property sector? What is the investor profile for this type of property? Where is supply concentrated? How do you value this type of home? To answer these questions, Grupo Tecnitasa spoke to Luis Díaz, our Tecnitasa Representative in the Balearics, and an expert in these types of property and their valuation. We set out the full details below:
Why are the Balearics among the favourite destinations for the luxury residential segment?
The Balearic Islands have been a luxury mecca for decades: their pleasant climate, their strategic geographical location within Europe, their connections, the safe surroundings, cuisine and the combination of coastline and countryside are just some of the reasons.
The Hotel Formentor, the first luxury establishment to open in the Balearic Islands 85 years ago, became a haven at the time for the wealthiest British visitors, and the luxury appeal of the Balearics has grown continuously ever since.
Alongside the number of luxury houses to be found in the Balearic Islands, an ambitious luxury ecosystem has been created, with specialist services including one of the largest and best Private Jet airports in Spain, a great many sports clubs, haute cuisine restaurants and numerous Boutique Hotels, to name just a few.
Luxury home investors: foreign executives with a family
Luis Díaz tells us that the luxury property sector is a product of interest to foreign investors, as inflation in Spain is lower than in their own countries.
While local investors set about selling properties to obtain returns, foreigners normally buy them for their own enjoyment during a certain period, using them as an investment for the rest of the year.
The typical investor would be aged between 40 and 60 years old, from Germany or Britain (although Sweden, Switzerland and more recently the USA have also been joining the market). These are company CEOs or executives who tend to visit with their family, although there is also a developer profile aiming to upgrade homes and achieve greater returns.
A new type of luxury client is also now emerging: sportspeople who come to the Balearic Islands to indulge in sports such as cycling and sailing. One good example would be the cyclist Jan Ulrich, who has a villa in the islands and is currently developing several more.
Villa Solitaire, in Son Vida, is a luxury villa on sale for 65 million euros. Image via Marcel Remus
The typical investor would be aged between 40 and 60 years old, from Germany or Britain. A company CEO or executive who would tend to visit with their family, although there are also developers who aim to improve homes and generate greater returns.
Luxury property trends: sustainability, quality, exteriors and design
What are luxury buyers looking for right now in the Balearics? Luis emphasises that in general they are after a home that is as sustainable as possible, with the highest levels of build quality and advanced smart home installations, allowing remote control and improved performance.
Outdoor spaces have become particularly important, especially since the pandemic. Potential clients are looking for a large outdoor area, ideally with elements such as Infinity Pools. As for design, they want a distinctive product. In general, minimalism, clean lines and plenty of light are the order of the day.
A number of clients specifically ask for houses built by renowned architects or very specific architectural practices, as in the case of the Ibiza-based practice Blakstad. There is also a degree of interest in buying homes that have belonged to noted celebrities.
The type of design varies depending on the location. In Formentera, villas follow the aesthetic principles of local architecture. In Ibiza, meanwhile, there is a move towards really modern lines, while using sustainable, natural materials such as stone and timber. In Palma de Mallorca, however, there is a mix. Puerto Andratx, Pollensa and Son Vida are among the locations with more modern designs.
Change in the concept of luxury home
The Grupo Tecnitasa representative in Mallorca highlighted that in the last three years, the concept and the requirements of luxury buyers have changed significantly in the Balearic Islands.
Previously, a home valued at between one and three million euros could be considered luxury, while now the minimum would be five million. There is a notable difference in quality, and because of the specific economic circumstances of the Balearic Islands, the cost of building is twice as high as in other regions of Spain.
On average, luxury property prices have risen by between 7% and 8% over the past year. Luxury homes are now typically being valued at average prices between 10 and 20 million euros, although new products are coming onto the market considerably in excess of this price range, as in the case of Villa Solitaire, an exclusive luxury home in Son Vida which is up for sale for 65 million euros.
What type of finance do luxury buyers in the Balearics seek?
Even if they have the capital to purchase the property, in almost 50% of cases the buyers opt to finance the transaction. Their lawyers will often suggest that they use finance to reduce the expense resulting from asset tax.
The amount financed is between 40% and 60% of the value of the home, which is the most that Spanish banks will grant a foreign investor. It is fairly common to apply for finance from banks in Spain, since despite the recent interest rate hikes here, rates are normally even higher in their countries of origin.
How are luxury homes marketed in the Balearics?
There has also been a change in the way that luxury homes are marketed. Rather than being advertised through several real estate agents, it is now more common to sign exclusive agreements with specific agencies.
The agencies have also become more professional, and set up specialist teams in this segment. Notable examples would be Engel & Volkers and Marcel Remus, specialising in Son Vida. In many cases, in fact, it’s not a question of seeking out clients for the current offering, but creating the offering based on the client’s needs. Right now there are real estate agents that are partnering property developers to create ad hoc luxury products.
What factors need to be taken into account when valuing luxury homes?
Alongside the very high demands in terms of build quality, the valuation of luxury homes likewise demands considerable rigour and detail when presenting the figures. Investors show particular interest in the quality specifications in the report, the materials, the brands used and the fitters, to give several examples. They also place considerable importance on the quality of the images taken of the property.
One really challenging aspect in luxury valuations is to find properties to compare them against so as to establish an objective value. To do this properly, you must have an in-depth knowledge of the market and the transactions taking place. In general, villas are not advertised online because of data protection, or because the client demands exclusivity.
Fortunately, the professionalism and reputation of valuers means that in many cases estate agents or property registrars will provide the necessary details.
As you can see, luxury homes in the Balearics are a highly distinctive segment with certain specific features demanding specialist professionals. Are you looking to value a luxury villa or high-end home? Grupo Tecnitasa is here to help. Contact us.