Spanish property downturn ‘worse’ than official figures indicate

The downfall in the Spanish property market may be even worse than official figures are showing, analysts are warning.

And the effect on property owners with second homes in Spain, many of whom are British, could be much worse as they face a rough ride in the UK as well.

The latest Spanish house price index shows that the average cost of a home fell for the first time in more than a decade in the second quarter of this year. But many agents say they are already seeing sharper falls with some properties down by as much as 30% in the past year. They point out that the official figures are based on valuations rather than transactions.

They fear that the country is heading for a property bust and that the worst is yet to come. They are also concerned about the effect of the credit crunch on holiday home owners who may be forced by lack of cash to sell up.

About 72,000 households in England have second homes in Spain, accounting for 34% of all properties owned overseas.

Part of the problem in assessing the Spanish housing market is its highly fragmented nature, with house prices varying widely across different areas. There are two different markets – one driven by demand from domestic buyers and another by foreign investors.

Simon Conn, sales and marketing director of Conti Financial Services, said some areas of Spain have seen far sharper price drops than have been reflected by the government's index.

Certain areas, particularly coastal towns, have seen falls of 10% to 15% during the past year. However, other areas, including cities such as Madrid, Barcelona and Valencia are still seeing price rises, he confirmed.

'You would be hard-pressed to find someone who is optimistic about Spain at the moment,' said Ben May, European economist at Capital Economics. The company is predicting house price falls in Spain of up to 15% over the next two to three years.

Matthew Weston, partner in overseas finance at Blevins Franks, said there has already been dramatic price falls in golf resorts. He said people simply did not want to buy into these resorts any more, with buyers wanting older properties with a real Spanish feel.