Overall, there are compelling reasons to worry that large segments of the Spanish property market will slump in 2008, particularly the holiday apartment market in popular coastal areas where the British tend to buy.

Firstly, the property boom of the last decade triggered a building frenzy that has lead to a glut of properties, especially on the coast. As the downturn evolves, planning approvals are falling fast.

Secondly, interest rates are still rising, and it appears that Spanish banks have dramatically reined in lending. This alone could choke off the market.

And thirdly, Spain’s property boom has seriously distorted the economy, which is now alarmingly dependent upon construction. The Spanish economy has become a real estate junkie, and economic cold turkey looks inevitable. A painful economic adjustment will hit Spanish demand for all types of property, but in particular holiday homes on the coast.

Nevertheless, Spain is a large and diverse country, which means that different areas and kinds of property will perform differently in the market downturn. Some areas and segments will slump, whilst others will fare better. This fact tends to get overlooked in recent gloomy reports on Spain.

The big problem will be in the most over- developed coastal areas, where there is a glut of identikit apartments in subprime locations. Most of Spain’s newly-built holiday apartments fit into this category, and many of them were bought off-plan with borrowed money by hapless British and Irish speculators.

A slump in the bog-standard apartment segment is likely to depress the market for desirable properties in good locations, but not by as much, and not for as long.  Attractive properties in desirable locations are always in limited supply, and 2008 will bring opportunities to get at them for a reasonable price. Buyers will be firmly in the saddle for the first time in a decade.

Of course price is not the only consideration. For people looking for a permanent or semi-permanent home, utility is a big concern, and quality of life after a trouble-free purchase may matter more to them than short term price movements. Spain is still a great place to live, and property in many popular areas will be cheaper than at any time in recent years. Looked at from this perspective, 2008 might not be such a bad time to buy.

But this being Spain, it is essential to do thorough legal searches before buying, no matter how good the price. The regional government of Andalusia, for example, has just demolished the home of an elderly British couple in Almeria, claiming it was illegal. No property, however cheap, is a bargain if it’s going to be knocked down.

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© Mark Stucklin (Spanish Property Insight)