When Prices Rise but Sales Fall: Mallorca Between Bubble and Everyday Hardship

When Prices Rise but Sales Fall: Mallorca Between Bubble and Everyday Hardship

Key question: How can the island cope with rising prices per square meter while the number of completed purchases falls sharply?

On the walk from Mercat de l'Olivar to the Plaça de Cort you can hear the screech of a construction machine and the quiet conversation of two market traders on this hot August afternoon – it sounds like the pulse of a city that keeps building even though fewer people buy property. In the second quarter, 3,167 residential properties were sold in the Balearic Islands; that is 13.1 percent fewer than a year earlier. At the same time, the average price per square meter on the islands rose to €4,311, an increase of 3.3 percent compared with the previous quarter.

Critical analysis: These figures point to two opposing forces. On the one hand, the number of transactions is shrinking, particularly strongly for new builds: down 26.4 percent, with only 609 sales in this segment. On the other hand, rising prices increase the burden on residents and buyers; existing properties became more expensive (+3.9%) than new builds (+0.6%). Of the 3,167 completions, 2,558 were existing homes – indicating demand for already-built apartments rather than fresh supply.

What is often overlooked: the share of foreign buyers is enormous. Almost one in three properties (32.3%) went to non-Spaniards – the highest share in all of Spain. Nationwide the foreign share was 16 percent, with more than 26,800 purchases. The largest groups came from other EU countries, notably the United Kingdom, the Netherlands and Germany. This brings buying power at the top of the market and helps explain why prices per square meter continue to climb even though the number of transactions is falling overall.

The reasons are diverse: limited building land, scarcity of inner-city plots, continued interest from buyers who do not primarily live here, and a market that channels parts of demand toward second homes and holiday rentals. Added to this are macroeconomic factors – higher financing costs and uncertain prospects – which likely deter many private buyers, while cash-rich buyers purchase selectively and at high prices.

What is missing from public debate: a clear distinction between different types of demand (primary residence vs. second home vs. investment), locally disaggregated data on short-term rentals and vacancy, and an honest accounting of the strain on infrastructure caused by tourist housing uses. There is little discussion about how much housing is effectively removed from the local market because properties are held as yield assets or rented out temporarily.

Everyday scene: In front of Palma's town hall a teacher from Son Gotleu and a waiter from Playa de Palma discuss the rent of their shared apartment. They count on their fingers: if the price-per-square-meter level continues to rise, there will be hardly any affordable housing left in the city for young families. The bakery on the corner provides an example: two flats above the shop have been empty for years – perhaps holiday rentals, perhaps speculation. Such empty windows in many towns are the real sign of the problem.

Concrete solutions: More transparency is the first step – regular, finely grained data on sales by intended use, short-term rental licenses and vacancy must be publicly accessible. Municipalities should consider whether fiscal tools such as a progressive vacancy tax or a second-home tax could encourage owners to rent to permanent residents. Prioritizing the acquisition of new social housing for local households, coupled with stronger requirements for social units in new developments, could provide targeted relief. Rules for tourist accommodation should be enforced more clearly and the registry of beneficial owners improved so investor flows become visible.

Who must act: Ayuntamientos (municipalities), the Consell de Mallorca and the Balearic Government must act in a coordinated manner. State support programs for affordable housing and better mediation between vacant stock and local demand actors (cooperative projects, municipal acquisition funds) are possible without completely overturning the market.

Conclusion: The figures show an island with growing price dynamics at the top and a gradual decline in transaction numbers across the board. This is not a law of nature but the result of political, planning and fiscal decisions – or their absence. If Palma and the municipalities do not become more transparent and do not secure housing for those who live and work here, the feeling will grow: Mallorca is beautiful – but hardly affordable for everyday life. Standing on the Plaça de Cort that afternoon, you hear the construction machine, see the new facades – and wonder who this city is really being built for.