Average Spanish property prices fell by 3.2% in 2008, according to the official house price index from the Ministry of Housing. Real prices, after adjusting for inflation, fell by 4.6%.

The Spanish construction boom has turned to bust

This is the first time that we have seen year on year price falls in the official index since the market started to slump in the second half of 2007. Officially, at least, nominal property prices have not fallen since 1993.

Average property prices fell almost everywhere, though prices were still creeping up in the provinces of Seville (+3.4%), Cadiz (+3%), Valencia (+0.9%), and Extremadura (+0.1%), if you believe the government’s figures.

Values fell the most in the province of Madrid (-7.6%), followed by Murcia (-5.8%), Tenerife (-5.8%), and Castellon (-5.3%).

Over 10 years, however, Spanish property values are still 215% higher in Andalucia, 211% in Murcia, and 200% in the Balearics. The same cannot be said of blue chip banking shares like Barclays (down 56% over 10 years), HSBC (-22%), or Allied Irish Banks (-87%). Relatively speaking, Spanish property has not been a bad investment over the long term (admittedly, returns don’t look so good when you factor in taxes and transaction costs).

The Ministry of Housing’s figures are notoriously unreliable, so all figures need to be treated with scepticism. In reality, price are falling much more than the Ministry’s figures show, especially in coastal areas popular with foreign buyers.

For example, two of Spain’s leading appraisal companies say that prices are falling nationally by 8.8% (Tinsa) and 6.6% (Sociedad de Tasación). The OECD, a Paris-based club of rich countries, estimates that prices are falling by 10%. Tinsa says that prices in coastal areas are down by 14.3%, though sales professionals report drops of as much as 30% to 40%.