"There's an awful lot of rubbish out there that just won't sell at any price," says Martin Dell of kyero.com, a website that lists 100,000 Spanish properties for sale by 1,500 estate agents. "There's huge developments on golf courses miles from anywhere, and bad-quality apartments in poor locations with no local amenities. When they talk about 40% or 50% discounts, even at that price they're not worth it."Torrevieja is the Spanish resort that exploded in size as Brits snapped up apartments and villas as frenetically as the developers knocked them out. But the town dubbed the Costa del Yorkshire is now better known to the Spanish banks as the home of the "British plumber mortgage", and knee-deep in negative equity as properties that once sold for €200,000 (£167,000) are now fetching as little as €60,000 (£50,000).
Don't expect a rebound in prices any time soon. The Costa Blanca was the most over-built region of Spain during the boom years, and a glut of property estimated to be as high as 1.2m units across the country will take many years to shift.
Desperate Spanish banks have started to offer 100% loans to anyone who will take distressed properties off their hands – and the buyers don't have to make a single repayment for three years. The 100% deals (on mortgages priced at about 3.5%) are for Spanish residents only, but they will give British buyers loans of up to 80%.
Andy Fox, who runs spanishbankproperty.com, acts as an agent for lender Bancaja and has access to 20,000 distressed and repossessed properties. He points to developments such as one in Adra near Almería, where prices on apartments that have never been occupied since being erected two years ago have plummeted from €150,000 to €74,040. And he is marketing a one-bed apartment repossessed by Banco Santander in a resort near Villamartin for €43,000 (£36,000).
But even he hesitates to describe prices as bargain-basement. "Please don't stick the word 'investment' on these properties. It's only a great time to buy if you are not interested in making money. Don't expect anything to jump in value, possibly for years."
British buyers, once the kings of the Costas, are now thin on the ground. During the boom, the British made up about 70% of the foreign purchasers along the Spanish coast, with stories of plumbers and taxi drivers buying three, four or five apartments at a time, often with large euro-based mortgages attached.
According to Mark Stucklin of SpanishPropertyInsight.com, the number of transactions has collapsed. One set of figures this week suggested that in the past six months only 500 homes have been bought by non-resident buyers across the whole of Spain. But Stucklin recommends taking such figures with a large pinch of salt. "There are few reliable statistics and indices. They are often based on asking prices which are vendor fantasies," he says.
The only figures that are reliable are those for transactions, which have fallen to 33,000 a month nationally, compared to 70,000 a month at the peak.
"The market has shrunk but it has stabilised," Stucklin says. "There is still a huge glut of unsold property that needs to be mopped up. The market is digesting the surplus stock in Madrid and Barcelona but elsewhere it will take a lot of time.
"We are seeing the Germans and the Nordics emerge as buyers in place of the Brits. The Germans withdrew during the boom, while the Brits paid top euro. Now the Germans are coming back," he says.
Official figures from the Spanish ministry of housing say prices have fallen nationally by only 11.2% since their peak. But indices from the two main domestic property websites, Idealista.com and fotocasa.es, suggest a fall of about 22%. "This seems to be a fair indication of reality," Dell says, but he adds that asking prices remain in many cases "bonkers".
Don't offer the asking price
Don't even consider putting in an offer on a Spanish property that isn't 25-30% below the asking price, Dell says. "There's some evidence that the decline in prices is tailing off, but we could see perhaps another 5%-10% off prices over the next year."
Rating agency Fitch forecasts that the Spanish property downturn will run until 2012, with prices falling 30% from their peak. In the boom, Spanish property prices across the country reached an average of 7.7 times local income – double the average between 1995 and 2000. That suggests that they may still have a long way to fall before they reach realistic levels.
"If you are looking for an investment, don't buy a Spanish property. But if you want to live in a hot country and are buying a property to occupy for many years, then it's an OK time to buy," says Dell.
Both Dell and Stucklin warn buyers to be cautious about the many websites now offering British buyers distressed and repossessed properties.
"Until very recently Spanish banks had to offer repossessions to the market at the initial valuation price. New legislation means that they have to write down values and take off some of the ludicrous valuations, but in truth they still remain overpriced and I expect many to eventually become social housing," says Dell.
The Costa Brava south of Alicante, which includes Torrevieja, has seen the broadest price declines but Dell says you have to head to the Costa Cálida in Murcia for the biggest price reductions.
Stucklin says prices remain firmest in upmarket resorts in the Balearic islands, Marbella and Sotogrande, where over-building was not on the scale of the Costa Blanca. He recommends a development in Sotogrande called Ribera del Marlin, marketed by Savills, where prices for two-bed luxury apartments have come down from about €595,000 (£497,000) to €410,000 (£342,000).
The lesson from the boom is an old one: location, location, location.
"Identify a desirable location where you really want to live. Make sure it has good views, and is not half an hour from a beach but more like five minutes, or that it's walking distance to the shops and restaurants," says Stucklin.
And don't rely on holiday rental income to cover the cost, says Fox. "During the boom the estate agents were telling people that the rental income would be fantastic. But with the fall in sterling the British just aren't coming in the same numbers.
"A lot of people bought off-plan in developments where they were promised a whole load of facilities, but they were never built," he adds. "It has been a nightmare for them."
