Mediterranean Islands: back on track

, published on May 3, 2018

When it comes to holiday properties and investments, real estate markets in the twenty or so Mediterranean islands, are far from typical. Let’s take a closer look at some of the most popular destinations: the Balearic islands and Sardinia.

The European housing market has been in recovery since 2013. Signs are, however, that this period of convalescence is drawing to an end: prices in the European Union rose by 4.7% last year but with variations of nearly 10% between countries. Spain has partially recovered from a crisis which saw significant devaluation of property and its performance is now in line with the EU average. The Balearic Islands, an archipelago of Spain, have also caught-up, with price rises slightly in excess of 5.7% due to intense interest in the glamorous, second-homes market.

Ibiza: the fashionable “campo.”

Holiday home owners in Ibiza, the most iconic of the Balearic islands, are predominantly from the North. The English elite were pioneers and the image of the “British gentleman” from the 1970s and 80s is still prevalent on the island. The British continue, by some measure, to make up the biggest proportion of foreign buyers but Lucas Fox agency acknowledges “Brexit has had a significant impact on the number of inquiries we’re receiving. However, at the same time, we’re seeing more interest from German, Dutch and French buyers.”

During the first two months of the year, sales soared by 17% compared to 2016, according to the Spanish National Statistics Institute. “The crisis is behind us but it was never that serious in Ibiza. The market just slowed down a bit. That’s because Ibiza has a distinctive character, starting with the fact that it’s an island, with its own construction methods and a multifaceted image that dates back to the Phoenicians but also embraces the likes of David Guetta,” explains Lucas Fox agent, Christophe Lainé. New property is rare because it is difficult to build on an island; firstly, there are the constraints of water and then legislation protecting the coastline which is every bit as restrictive as the French Coastal law. In such circumstances, there is tremendous pressure on old properties.

The “Holy Grail” is still a sea view but budgetary constraints often result in other choices: you can, for example, buy a pretty house near the sea but without a sea view, for between €500,000 and €600,000. A renovated family house is worth €1.5 million and the perfect old farmhouse or “finca,” at least €2-3 million after refurbishment although you will be lucky to get one hectare of land for this price. It is rare to find a large plot of private land in Ibiza. In the top price bracket, villas sell for up to €10-15 million, and are genuinely exceptional, like this gem, advertised  by Christies: 3-storey property with 1,200 m2 floor space, set in 15,000 m2 of extremely private land, in hilltop location, with sea view.

Traditionally, prime real estate tends to be located next to Santa Eulalia, the second town after Eivissa (Ibiza Town) and San Antonio, a lovely marina, renowned throughout the archipelago. However, there is also a trend towards buying inland, in the “campo” (countryside) which is never far from the sea and boasts dense vegetation and hilly terrain. Apartments in the old town of Dalt Vila, are rather dark and often second-rate but there are a few exceptional 150-200 m2 properties that sell for between €5,000 and €7,000/m2. Fans of English-style “gated communities” will love Vista Alegra where the villas are worth between €4 and €6 million, as well as Roca Llisa and Can Furnet, in Santa Eulalia.

Rental returns of between 8-10%

“The most frequent request that I get from Parisians is for houses in the €1-1.5 million price band, that need renovating, with a view to renting them out for a few weeks a year,” observes Benjamin Damazière, president of François 1er Conseil. If you purchase wisely, you can make between 8-10% profit, bearing in mind that peak rental season now lasts five to six months whereas previously it was two months.” Last year, seven million visitors passed through Ibiza, an increase of 14.6% compared to 2015. “Rental demand is very high but the supply of nice, renovated houses is low” he continues. “An owner who’s completed high quality renovations will find a tenant immediately. A lot of Saint Tropez residents, in particular, sell up to set up home on this young, fun island.”

Arad Edrey, manager of NuvoBarcelona, who advises investors in Catalonia and the Balearic islands, backs up this statement. “Our clients often come from the south of France or Marrakech. These are investors in the true sense of the word who invest their capital in property with a view to increasing their assets. Obviously, they want to spend a few months each year on the island.” According to this company, which oversees construction and renovation projects from beginning to end, the cost of work can amount to €1,000/m2 but assembling a good team of professionals is not easy on an island like Ibiza.

Menorca: an island with great potential

After the crisis, the Menorcan real estate market was slow to recover. There was a good supply of properties but a low demand. This trend has reversed in recent months and it is not uncommon to see several buyers compete for the same property. “This market turnaround is down to advertising, directed at members of the public with no previous knowledge of Menorca, explained Laurent Morel-Ruymen, director of the agency Menorca Fincas. “These newcomers have discovered, just 1.5 hours from Paris or London, competitive advantages that no longer exist in some very reputable resorts, such as attractive property prices, beautiful natural scenery and a wonderful sense of social harmony, evident throughout the island.”

Along this pebbly coast, dotted with coves, a waterfront villa – the most sought-after property - is as hard to find as a long stretch of sandy beach. There are a few farmhouses with thirty hectare plots of land, on the water’s edge, but as a result, they go for a minimum of €2 million, despite needing full renovation. Often buyers continue to use their land for agricultural purposes, like these owners of the legendary Petrus vineyards in Bordeaux, who have converted their property into a wine estate. A high demand comes from Mediterranean enthusiasts, hoping to get their hands on their dream house, as close as possible to the sea. Ciutadella, the old aristocratic city, with its charming port and historic, listed buildings, is their preference. A house with a patio, in the city centre, goes for €400,000 and the ultimate in real estate, an 18th century palace, sells for €2 million. A less centrally located, 200 hectare farmhouse amounts to €10 million. “In the south of France, a comparable property would be worth €50 or even €80 million” continues the estate agent. “In Menorca, the price of properties for sale is nowhere near their historic average and price increases are still 50% lower than in Ibiza and Majorca, suggesting that there is significant room for growth.”

High networth individuals in Sardinia

Between 2008 and 2013, the Italian property market experienced an unprecedented crisis, during which the number of transactions decreased by 40% (compared to 14% in France). These depressed sales were accompanied by a modest drop in property prices, too insignificant to revive the market. It is thought that the housing slump has been going on for ten years but a distinction must be made between regular and high-end properties which remain highly sought-after and are still a safe bet.

Having said that, a tax “revolution” is underway. Similar to the British, who grant tax breaks to non-resident foreign nationals (Non-Doms), the Italian government has just introduced the 2017 Finance Law, a tax system which benefits super-rich, of all nationalities, living in Italy. These individuals will have to pay a single, fixed, annual payment of €100,000 for all foreign-sourced income. This method is a way of attracting – amongst others - the small community of tax émigrés resident in London, disappointed by Brexit.

Sardinia has the capacity to accommodate this rich seam of new purchasers and tourists. During the 1960s, it already attracted celebrities such as the Aga Khan who invested in property in the North-East of the island, creating the Costa Smeralda (Emerald Coast), the jewel in Sardinia’s crown and an area packed with beaches and exclusive villas. Porto Servo has become the fashionable spot on the coast, along with Porto Rotondo, where Silvio Berlusconi built his summer residence. Villasimius, Costa Rei and Arbatax in the South-East are growing in popularity. Since the recent opening of its small airport, Alghero has similarly begun to attract a growing tide of tourists. “You can pick up a decent villa for €1.5 million plus,  provided that it’s not too big or the location too exclusive. However, a high-end property in Porto Rotondo could cost €25-30 million” according to Lionard Luxury Real Estate agency. This exclusive market attracts a small, elite circle of Russians, Canadians, English, Turkish, French and Italians. Although they come from opposite sides of the world, their requirements are very similar: a “turn-key,” private villa, away from prying eyes, near the sea and a lively village. These kind of properties are like gold dust in Sardinia and, indeed, all the other Mediterranean islands.