“After the summer we will see big price reductions,” Gonzalo Bernardos, a Spanish property expert at the University of Barcelona, told the press at the release of his latest report on the Spanish real estate market. “In cities like Barcelona prices are only down by 5% so far, but after the summer the falls will be bigger because buyers now have the pricing power, and investment demand has evaporated.”

Bernardos publishes an annual report on the real estate market in conjunction with the property consultancy Forcadell. 2 years ago he forecast that property prices would fall 20% between 2007 and 2009, causing an uproar of protest in a property sector still enjoying a boom.

At the heart of the property market’s problem is an oversupply that Bernardos estimates will stand at 1 million properties by the end of 2008. In his opinion prices have to fall to bring the market back to life. He also recommends a package of measures such as tax breaks to stimulate the rental market, and an agreement with mortgage lenders to reduce mortgage rates.

If nothing is done to address the problem, Bernardos warns that “2009 will be worse, with a million more unemployed, because the Spanish economy is like a Molotov cocktail.”

On the subject of the government’s house price statistics, which many people criticise as unreliable, Bernardos is scathing. “One has to laugh when the Ministry of Housing says that prices are rising by 4% at a time when nothing is selling. At best developers are selling 20% of what they sold in 2006. They couldn’t sell less if they tried.”

Despite the collapse in sales, Bernardos thinks that prices have yet to catch up with reality. “Regards prices we haven’t reached the bottom. Prices will have to keep falling to bring supply and demand into balance, in many cases just covering mortgages.”

Prime properties are in trouble too, according to Bernardos. “Even prime residential districts of luxury property like Paseo de Gracia (Barcelona) and Calle Serrano (Madrid) aren’t selling, because the majority of buyers for this type of property are speculative investors,” says Bernardos, who also points out that “it didn’t make sense that Madrid and Barcelona were the most expensive cities in Europe after London. It will take a long time for prices to return to the levels of 2006.”

Bernardos notes that in some areas “supply is so great it will take 10 years for supply and demand to return to balance because some of the building in the boom was just insane.”