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Spanish property prices could drop another 27% in 2010 as many are over valued, report warns

Overall property transactions in 2009 dropped by around 41% compared with 2008, the report by Spanish property consultants and analysts Aguirre Newman, also shows.

The report, Coyuntura Global del Mercado Inmobiliario Español, also warns that bank valuations continue to overestimate the true worth of property in Spain.

In the report analysts says that there is no easy solution to the problem other than a substantial overhaul of Spain’s banking regulations to ensure future house valuations are done at a more realistic level.

It also warns that the housing market in Spain will remain depressed while banks continue to sell off huge stocks of repossessed homes and regional authorities continue to finance the purchase of unsold homes with government grants, such as Andalucia’s 2010 plan.

There are 610,000 new homes unsold in Spain, with another 380,000 being completed and 520,000 second hand homes for sale.

‘Current home price estimates do not reflect true market values. Banks and real estate companies that own or have financed unsold new homes will have to accept price cuts of around 27%,’ said Javier Garcia-Mateo, director of analysis and investigation.

However, the report does expect office and retail rental prices to stabilise in 2010, ahead of any possible recovery in 2011.

The housing slump tipped the Spanish economy into the worst recession in 60 years, and Spain’s unemployment rate is the highest in the European Union. Home sales fell about a third in the 12 months through September, the latest government data shows.

Real estate companies including Martinsa-Fadesa have filed for protection from creditors in the past 18 months after falling behind on debt repayments when the market collapsed.

Banco Santander, Spain’s biggest bank, together with its consumer unit Banco Espanol de Credito SA, has €4.1 billion of property assets after acquiring real estate from failing developers.

Some analysts have warned that if this is dumped on the market in 2010 it will have a major impact on the industry.

Banco Bilbao Vizcaya Argentaria has said it expects to end the year with €1 billion of real estate after accepting property in exchange for cancelling loans.