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Properties are selling fast in the Balearic resort but UK nationals face a hurdle with a new permit requirement

Earlier this year, while waiting to complete on a home purchase in Ibiza, UK-based buyers David and his wife received an unwelcome surprise. Since the end of the Brexit transition period in January, British buyers have been required to secure a military permit for homes in most rural and coastal locations on the island, thanks to a General Franco-era rule that designated much of Ibiza of strategic military importance.

“We had never heard of [the permit rule]. The delay caused us to miss the deadline agreed with the seller,” says David, who did not want to give his real name. The couple had to add another 10 per cent — roughly €90,000 — to their deposit to reassure the seller. The permit-approval process, which included checks in the UK, took four months.

Spain’s lockdown closed the Ibiza property market between March and June last year and travel restrictions and quarantine requirements curtailed foreign buyer activity significantly following that. This year, thanks to pent-up demand, Engel & Völkers has sold roughly 50 per cent more homes by value compared with the same period in 2019, according to Florian Fischer, who runs the company’s Ibiza business.

As the competition for homes increases, the permit requirement, which applies to all buyers except residents of the EU or Schengen area countries, is placing many at a disadvantage. Ignacio Rodríguez, a lawyer for PwC in Palma, Mallorca, says he saw roughly 20 deals in Ibiza for homes priced between €1m and €8m fall through for this reason, and the same number in Mallorca.

Sales requiring mortgage finance are particularly at risk since banks will not approve a mortgage until the permit has been obtained, he says. “The industry was caught unaware. Many local notaries didn’t know about the permit requirement.”

Meanwhile, buyers are returning to Ibiza. Those from the Spanish mainland, German-speaking countries and the Netherlands are particularly active and the time between viewing and sales is shorter than before the pandemic, according to Fischer.

Traditionally, buyers would make two visits to the island, returning to favoured homes for a second viewing before making an offer. Today, many buy on their first visit, wary of travel bans preventing a return, or losing out to other keener buyers.

Since the pandemic, much of the demand has been for larger, higher-value homes. The average price of a home sold by E&V last year was up 29 per cent on the year before.

New buyers and existing owners are using their homes for longer. Alain Heinz, 53, from Luxembourg, typically spends six weeks at his villa in the north of the island in Benirrás. Last year he stayed there between May and October.

Foreign buyers seeking large family homes have a range to choose from — both original fincas and new constructions — across the island. In Ibiza’s centre, the area around Santa Gertrudis de Fruitera is popular thanks to its proximity to the Morna International College, which follows the English curriculum.

In the north, popular villages include San Lorenzo, San Juan and Benirrás, while in the south, demand has increased for gated communities such as Roca LLisa, near the Golf Ibiza golf course, and Vista Alegre near Es Cubells. Ibiza living can be relatively discreet by super-rich standards, with most of the finest estates and smartest villas hidden from view down long untarmacked roads.

Morna International College has received record numbers of inquiries in recent months as families seeking safe remote working relocate from primary homes mainly in the UK, the Netherlands and the Spanish mainland, according to Julie Anne Harwood, the school’s business manager.

The gains made up for sharp falls in pupil numbers last spring when many families with tourism-related businesses realised they would be unable to pay the fees, and others with homes abroad returned for safety. “Few of the children of local business owners have come back,” says Harwood, noting Ibiza’s summer tourist season still hangs in the balance thanks to travel restrictions.

The exodus caused a flood of rental homes to come to market, triggering a welcome fall in rental prices. Donovan Garnett runs a Facebook page with 43,000 members, matching landlords with those seeking rooms in houses and apartments in Ibiza. In typical years, renters outnumber adverts on the page by 10 or 20 to one, he says. Over the winter there were more homes on offer than renters. Rents fell on average between 10 and 20 per cent.

“You had two or three couples sharing apartments who have each been able to move out and find small studio apartments,” he says, adding that local families who had to rent out rooms to cover their own rental costs no longer need to. Rents have now returned close to pre-pandemic levels, he says, but with most rental contracts in Spain effectively binding for five years, many local workers have seen lasting improvements.

Short-term rental income in the peak summer months is an important source of revenue for many owners in Ibiza, including Heinz. He typically rents his home — a coastal detached house with five bedrooms, a pool and a gym — during July and August. Even after agents’ costs of between 15 per cent and 20 per cent, it provides a considerable income, he says.

Toni Guasch provides maintenance services to 20 high-end villas across Ibiza, which earn their owners between €4,000 and €20,000 weekly during the peak summer season of July and August.

“A lot of this year’s bookings are rolled over from last year,” he says. He predicts occupancy of roughly 80 per cent this summer but says that travel restrictions remain a threat. Typically, owners use revenue to meet the considerable running costs on homes for the rest of the year, he says.

Elsewhere, Ibiza’s economy is desperate for a summer season untroubled by travel restrictions. “All moorings for July and August are now reserved,” says Isabel Teruel from the company that operates Botafoc Ibiza, one of several marinas in Ibiza Town.

Excepting a short period in June and July, revenues from sales of fuel and mooring fees following the pandemic were well down on last year, with the surrounding restaurants and shops also severely impacted, Teruel says.

But many of the bookings this summer are for boats with UK owners, who may well cancel or postpone without a change to the current requirement to quarantine for 10 days upon their return from the Balearic Islands. “One has the feeling that nothing is for sure these days,” she says.

Meanwhile, buyers requiring a military permit to complete a home purchase remain nervous, too. They may be tempted by local companies offering to fast track the process in four to six weeks. But the rules giving the military up to four months to complete the process mean such claims cannot be trusted, says Rodríguez. “I don’t believe they can speed up the process. The application must go to Barcelona or Madrid, and wait for a signature by a military officer.”

Regardless of where you come from, purchasing a rural home on Ibiza requires careful research. In most cases, additions and extensions are likely to have been made to original buildings, and often permissions have not been obtained. Nearly every detached home in Ibiza will have some small addition that has not received the required permits, with porches, pools, garages and basements the most common, says Rodríguez.

In case illegal additions are detected by authorities, he advises buyers of a €5m home to budget between €50,000 and €150,000 in fines and demolition costs. “But the emotional damage may be much greater if you have fallen in love with a property because of the pool and the porch and you then have to demolish it.”