The number of Spanish properties bought and sold in October (39,201) was 27.5% less than the same time last year, according to the latest figures from the Spain’s National Institute of Statistics (INE). In the first 10 months of the year, sales are down by 28.4% compared to last year. That means that the Spanish property market has shrunk by almost 30% in a year.

Figures also released by the INE reveal that new mortgage lending fell by 40.7% in the same period, which helps to explain the severe market contraction. Mortgage lending in Spain, as elsewhere, has been brought to heel by the credit crunch.

The resale market has been hit particularly hard, with sales in October down 43% year on year, and by 38.7% in the first 10 months of the year. Resales fell by 65.2% in the Balearics, and by 44.7% in Catalonia.

New build transactions, on the other hand, were only down 8.7% in October, and 13.7% on an accumulated basis, suggesting that the new build sector is managing much better in the market downturn. In reality, this is not the case. Thanks to long sales cycles in the new build market, the INE’s figures reflect sales originated in better times. New sales by developers have collapsed this year, a fact that we can expect to show up sooner or later in the INE’s figures.

Gustavo Samayoa, head of a Spanish consumer group, points out that the Spanish real estate market is just going through a necessary adjustment. “It was clear that the resale housing market was going to crash down because it suffered from tremendous inflation,” says Samayoa, quoted in the Spanish daily ‘La Vanguardia. “It had drawn level with the market for newly built property, with exorbitant prices.

The market is not suffering from a lack of demand, but from a lack of financing, argues Samayoa. Banks now lend less than 80% of a mortgage valuation, and ask for guarantees that many borrowers cannot hope to provide.

Pedro Pérez, president of the G-14 developer association, also blames the banks for the plunge in demand and transactions. “Without financing, there are no transactions,” says Pérez, quoted in La Vanguardia. According to Pérez, one in two sales fell apart in 2008 thanks to financing problems.

“If there are no loans who is going to buy?” asks Santiago Baena, president of the API real estate association, quoted in La Vanguardia. Baena does not expect the situation to stabilise until the autumn.