Mallorca attracts more and more buyers
After a slight decrease in sales compared to the pre-corona period, the real estate market in Mallorca is experiencing a new boom. The reason: the regional government has significantly increased the property tax allowances. This change is intended to attract international buyers and investors in particular, who can benefit from the new tax advantages.
Higher allowances as an incentive to buy
Since January, property buyers in Mallorca, Menorca and Ibiza have been able to benefit from a significantly increased wealth tax allowance. The limit has been raised from 700,000 euros to three million euros, which means that assets up to this amount are tax-free. This removes a hurdle for many international buyers and investors to invest in real estate on the Balearic Islands.
This regulation is of particular benefit to German buyers, who traditionally form the largest foreign buyer group in the Balearic Islands. Many of the sought-after properties can now be purchased tax-free, which further increases the region's attractiveness.
Real estate market on the upswing
A stroll through places like Puerto Portals or Port dʼAndratx confirms this trend. Here, exclusive properties, such as a renovated villa with sea views for just under three million euros, are being offered by estate agents. In total, around 80 percent of properties fall under the new tax exemption. With the tax change, the new regional government, which won the elections in May 2023, is pursuing the goal of retaining wealthy residents and attracting new ones. In Spain, the regions have great freedom in tax matters, which made this step possible.
Tax details
The wealth tax for private individuals whose assets exceed the tax-free allowance varies progressively between 0.28 and 3.45 percent of net assets per year. For non-residents who spend less than 183 days a year in Spain, only real estate assets are taxed. In addition, the tax-free amount applies to each individual, which means that a married couple can double the amount in the land register.
Inheritance and gift tax has also been abolished for first-degree relatives, which provides a further incentive to settle permanently in the Balearic Islands.
Investments made easy
The purchase price less mortgages serves as the assessment basis for wealth tax on real estate. In the event of a profitable sale, the tax authorities charge non-residents 19 percent. In Germany, on the other hand, there is no tax on owner-occupied properties and the speculation period of ten years only applies to rented properties.
Challenges and opportunities
The real estate market in Mallorca initially experienced a slight slowdown in 2023. The Chamber of Notaries of the Balearic Islands recorded "only" around 15,000 residential property sales, which is four percent less than in 2019 and in line with the average of the last ten years. These times seem to be over. To further stimulate the real estate market, the regional government is also planning to make it easier to build hotels. This could support the labor market on the islands, but could also exacerbate the existing problems of overtourism.
Conclusion
The new tax incentives have the potential to stimulate the real estate market in Mallorca even more and thus attract international investors. German buyers, who often regard Mallorca as their "seventeenth state", will particularly benefit from the new regulations. We recommend that you get comprehensive advice before making a purchaseto take account of regional building regulations and, in particular, the Coastal Protection Act. Overall, Mallorca promises to remain an attractive destination for real estate investments.