Is It Time To Restrict Foreign Property Purchasing?

The Bow Group, while associated with the Conservative Party, is an independent organisation. Its views and its members are, nevertheless, recognisable as being to the right of political thought. It has over the period of its existence since 1951 shifted in terms of dominant philosophy. In 1973, for example, Peter Lilley produced the so-called alternative manifesto which marked a move away from Keynesian economics: the ground was being prepared for what was to become Thatcherism.

As such, therefore, it would be presumed that the Bow Group would be wholly market liberal. That presumption would normally be accurate, but in November last year the Bow Group came up with a proposal which might sound staggering, given its usual philosophies. It was addressing Britain's housing crisis, and its solution, rather than the building of thousands more new homes, was the cutting of demand. Specifically, the author of its report, Daniel Valentine, argued that Britain should follow the lead of countries such as Denmark and Switzerland and make it tougher for foreigners to buy properties.

In Switzerland there is an annual quota for how many homes can be sold to foreign non-residents. This applies countrywide, though the individual cantons can and do apply additional restrictions. Denmark doesn't allow non-EU nationals to buy homes unless they have lived in the country for five years. The EU allows Denmark to restrict second-home purchases by EU citizens. Those citizens who do purchase need to provide confirmation that the property will be lived in all year round.

Away from Europe, the Singapore government restricts purchases to condos or apartments without the need for first obtaining permission to buy. In Australia, non-resident foreign purchasers can generally only acquire new builds. The Bow Group has suggested just this, with penalties applied if the property is sold within five years.

At the heart of what the Bow Group has said and also at the heart of what certain countries have introduced by way of restrictions is a recognition that a free-for-all, liberalised market doesn't work. Or rather, it works well enough for some but most definitely not for others.

Last week, and despite a report of 29% growth in home sales with the Balearics to the forefront, it was said that a new housing bubble was not about to emerge. Perhaps it won't, though there are some who say that it will. Consider, if you will, a further recent report which identified the fact that there are some 600 owners of 32,000 properties in the Balearics. Why do they need so many? The basis of a bubble is speculation. How many of these 600 plus might be foreign owners? The information would be possible to extract. Perhaps it should be.

There has been a great deal of discussion of what is an increasing housing crisis in Mallorca. The factors that have contributed to it are well-enough known, one being purchases for rental - holiday rental - purposes. A further factor is the cost of land, of which there is in any event a shortage for development. The cost in Mallorca didn't decline during the years of crisis to the extent that it did in many parts of Spain. With crisis mostly a thing of the past, land is at a premium and at a premium price, especially in the more desired parts of Mallorca, with the coastal resorts, the source of much employment, at the top of the list.

In the first quarter of the year, there were, according to figures from the national ministry for development, 3,122 homes sold in the Balearics (988 of them in Palma and 307 in Calvia). More than a third of these were purchased by foreign buyers. The average spend on property by foreigners in the Balearics was almost double the national average. The average price of any purchase exceeded by some 37,000 euros the price in the second most expensive region - the community of Madrid.

In some respects, this is of course good news, but in others it is far less so. While it might be said that there is a particular distortion in the market in the most in-demand parts of the island, such as Palma, the Bow Group in its report argued that purchases by top-end buyers in specific areas pushes prices up in the whole market. In Mallorca, small that it is, this is occurring. Prices in the interior are up both for purchases and for rental.

An argument is and will be that wealth is generated generally by a highly active property market. While true, it depends on where and how that wealth is distributed. The middle class in Mallorca, hammered by crisis, shows little sign of recuperating its one-time purchasing power; as yet anyway. The consequence is the total distortion and imbalance that now exists. When the Balearic government introduces its housing bill, will foreign purchasers be a target?

Out Of Whack: Mallorcan society

These have been a depressing few days. The church's charity, Caritas, spoke of the chronic poverty that afflicts part of Mallorcan society. The town hall in Palma has increased the amount it spends on economic aid to people of the city. Average income levels in the Balearics as a whole are well below what they were some eight years ago.

The latter, it needs pointing out, were 2014 figures, but whether there would be much difference some eighteen months on might be questionable. The experience in Palma would suggest not, albeit there is a caveat in that the town hall has expanded the scope for the aid it hands out.

What is particularly depressing is the fact that there is meant to be an economic recovery. To counter the poverty and incomes' reports have been those which point to what is pretty much a boom time on the high streets (if there were such things). Retail has not known any better times for the past fourteen years. Astonishing. Meanwhile, the price of property goes up, and Ibiza Town can claim to be the most expensive place in Spain. Incredible.

Ignore the depressing reports, adopt an I'm All Right Jack approach and things are astonishing and incredible. But those reports shouldn't be ignored. Things aren't right. They are far from being right. The unions are referring to a structural crisis. The economic one may have passed (for many) but it has left behind a widening imbalance, a major disequilibrium. Maybe it can be possible to begin to appreciate why the Partido Popular, having presided over austerity-turning-riches, is unpopular enough for the electorate to give the likes of Podemos houseroom, even if some of this electorate has previously voted PP. It isn't just corruption. It's the pocket. And the pocket has been picked.

But not for everyone of course. Want to know something else astonishing and incredible? There are 636 owners of more than 32,000 properties in the Balearics: that's fifty each. These aren't banks, these are real people (or real people's companies). In the past ten years the single ownership of multiple properties - from six to ten, from eleven to twenty-five, from twenty-six to fifty - has gone up by roughly 60%.

This, in no small part, has come about because the property market bubble burst so dramatically (albeit not at the top end). Lower-priced property, and lots of it, was available. But it still required someone with a good deal of spare cash to go on a property-buying spree. The time to cash in may have arrived.

The property market, you have the impression (and there seems to be evidence every day to support this), is totally out of whack. (Or rather it's very much in whack if you happen to be among the acquisitive class.) You can never accuse Balearic teachers of missing a good opportunity to indulge in a spot of propaganda, but the image of tented accommodation for one of its membership in Ibiza might be more than just agitation. The problems with rented accommodation on that island appear to be worse than in Mallorca, and they're bad enough as it is here.

The regional government is alarmed at the growing disparity, at the problems with housing and at the level of incomes. But it cannot force onto the market what the market won't accept. It can try, as with its idea of linking hotel star ratings to the "quality" of employment, but this stems at least in part from a political agenda that enjoys casting the hotels in the role of the baddie. Yes, they may only offer contracts for a set number of months, but check out some of the earnings: they aren't as bad as they are made out to be. Not when compared, for example, with the similarly low-paid retail sector.

But to come back to retailing and the current boom in sales. How does this square with incomes in general being so modest and having failed to recover to pre-crisis levels? Does one trust the figure for average income, one of just under eleven grand a year? Who is it that is making all the purchases of household goods that weren't being made even a year ago? The owners of those multiple properties? Foreign owners? Those who are kitting out properties with IKEA stuff and posting them onto Airbnb?

Whatever the answers to these, there is unease - fuelled to a degree by politicians on a mission - caused by the seemingly widening gap in society. Recessions, a sort of maxim goes, are economic occasions when advantages can be sought and gained. Property appears to be one of them. Allied to this is the fall in incomes and the unions' structural crisis afflicting the middle as well as working class. And then there's the chronic poverty.

Thankfully, the sun shines. But it hides the clouds.

When It All Falls Apart

How can it have come to this? There are people I know who have lived in Mallorca for a very much longer time than I have and others who have been acquainted with the island for considerably longer than myself. There are people who rant about anything and who can be ignored and then there are those whose views and opinions one respects because of their "veteran" status and their rationality.

Sometimes, the most unexpected happening sparks off a reaction one might not have expected. Poison being put down on Llenaire beach in Puerto Pollensa was most unexpected. It is far from normal for people to go around trying to poison animals, which is presumably what the poison was intended to do. It was most unexpected, but perhaps because it was so unexpected, it has shocked more than other happenings. The final straw maybe.

People who have chosen to live in Puerto Pollensa or to buy property there or who have simply made a habit of coming on holiday are rightly proud of their decisions. It is notable just how passionate people are about Puerto Pollensa, as others are passionate about other parts of Mallorca. Occasionally, this passion leads to defensiveness or a dismissal of problems. Normally, however, these problems are of the oh God, it's Spain variety. People get used to cock-ups, things not getting done or masses of bureaucracy. People deal with all this; it is part of a perverse charm.

But there is something else which is notable. People are getting pissed off. They are also aware that their little bit of heaven is not quite as it was. It is no longer what was said on the tin. The poison on Llenaire beach is like Milton's poison in the Garden of Eden. Innocence lost. It might seem an over-reaction, but maybe it isn't. Maybe it is symptomatic of the whole paradise dream beginning to fall apart.

Of course, one can always look elsewhere and compare problems. They are worse elsewhere. True, but contenting oneself with the knowledge that elsewhere is worse is a clutching at straws. The final straw may have broken the back. Things were never meant to have got to the stage of a "worse" comparison being made because things were never meant to have been bad. Without a bad, there can be no worse.

It is a drip-drip which suddenly becomes a gush-gush. Puerto Pollensa is not unique in having properties targeted by tax and tourism inspectors, but the actions of the government are more acute in the resort than almost anywhere else on the island. What disappoints and then hacks off is the knowledge that money has been pumped into the area through property purchase and through all the additional benefits this brings to the local economy; the knowledge that so much love has been devoted to an area, to an island that many have fallen head over heels with. People feel more than disappointment. They feel dumped on, taken advantage of, disrespected despite all that they have done.

The actions of the tax and tourism inspectorate are only one manifestation, and rules may apply equally to Mallorcans and Spaniards as they do to foreigners, but do they, because how does one explain the views of someone who was brought up here, who has owned a business here, employed people here, who has lived here for the best of half a century (and on the southern side of the island)? Someone who sees everyone here being in "the hands of idiots and imbeciles who are ruining our future", who says that the "sooner we foreigners realise that we are and always will be second-class citizens, then so much the better".

So much for the better or maybe so much for the worse. There are very many worse places that lack the same stunning views, that lack the innate charms of, for instance, a Puerto Pollensa. But equally, there are very many other places that can lay claim to similar attributes. Little pieces of heaven can be found elsewhere. Elsewhere that isn't necessarily worse.

Lunacy such as the attack on property is a clear and tangible example of an undermining of the paradise better-place that was promoted on the tin. But there is also that which is not tangible, an abstract sense of a falling apart, and it comes not because of financial investment so much as because of emotional investment. People want to love somewhere, to know that they have found their little piece of heaven. And so they have, until one day they wake up and realise it has all been a dream.


Any comments to andrew@thealcudiaguide.com please.

MALLORCA TODAY - Sa Fortalessa sold to a Briton

It is the most expensive property in Spain. Sa Fortalessa in Puerto Pollensa, in fact a small castle, seven houses, its own forest and coves, has been sold by John Ogden to a fellow Briton whose name has not been revealed and for whom a Spanish company has been acting. The exact price has also not been revealed, but it had been marketed, by different firms, at 100 million euros and 120 million.