Estate agents used to be so pervasive in Spain that some authorities sought to stop them taking over tourist haunts. But according to figures published yesterday, in only six months the number of estate agents' offices has been reduced by more than half.

The 10 largest estate agents had 3,001 offices between them at the end of 2007, but now only 1,434 remain open. For sale or closed signs are a common sight outside former estate agents, particularly on the Costa del Sol or Costa Blanca, two regions popular with British buyers.

Two of Spain's major estate agents, Don Piso and Fincas Corral, have gone up for sale. Don Piso cut the number of offices from 400 last year, to 140. MC Inmobiliaria, another major agency, owned 218 offices last year, but now operates from 60 - a fall of 72.5%.

It is another symbol of the deepening crisis in Spain's construction sector after its decade-long building bubble burst. Spanish construction output fell 3.1% in June, according to figures from Eurostat, the EU statistics office.

The collapse has hit the Spanish economy. Gross domestic product grew 1.8% year on year in the second quarter, compared with 2.7% in the first quarter, according to the Bank of Spain.

With demand for homes falling, unemployment is rising, reaching a 10-year high in July of 2.43 million. Nearly two thirds of those out of work were building workers.

María Angeles Repilado, of Spain's General Workers' Union, predicted many unemployed building workers would pick grapes in France this summer, earning €8.71 (£6.95) an hour instead of €6 on building sites.

The mass closure of estate agents' offices may also be a symptom of the way the industry is changing. Gareth Milton, operations manager of propertyshowrooms.com, said: "Companies who had always focused on web-based activities without the massive overheads associated with a network of physical branch offices are the ones more likely to weather the storm."

Full story from www.guardian.co.uk

People considering investing in Spanish property should not be put off by the current troubles as the market will bounce back.

Spain has been one of the countries worst hit by the credit crunch and is experiencing a major economic downturn as a result.

However, according to reports in the Tenerife News, Santiago Baena, of the Spanish Real Estate Association, does not believe the current downturn will last long.

According to the website Ready 2 Invest he believes the country's property market will bounce back and enjoy growth once again, possibly as early as next year.

Commenting on current market conditions, Mr Baena said that Spain is currently experiencing a "severe adjustment".

For years Spanish property was in high demand from UK buyers which lead to a building boom and high prices.

Mr Baena said that while the upcoming rate of growth will be lower than during the boom years, normality will eventually return.

Despite the problems Spain is still attracting a lot of serious investors, and according to the Association of International Property Professionals (AIPP), the country accounted for more than a quarter of overseas purchases last year.

For anyone looking for a long-term investment in Spain, now could be the best time to buy, as resale prices are having to seriously be reduced in order for properties to sell and many developers are having to lower prices and introduce incentives in order to avoid hundreds of new-build properties standing empty.

Full story from www.homesworldwide.co.uk

High inflation is a threat to your standard of living because it reduces how much you can buy with your money. Another threat to expatriates’ spending power is the exchange rate – for example, over the last year the Sterling to Euro conversion rate dropped around 15%.

With the Bank of England cutting its base rate in April to stimulate the British economy and the European Central Bank increasing its rate in July to fight inflation, the divergence between the two currencies looked set to continue. If the two banks were to maintain these tactics the exchange rate could worsen for expatriates and those looking to change Sterling into Euros, for example to purchase a Spanish property.

However exchange rates are hard to predict and with both Banks needing to fight the opposing threats of high inflation and low economic growth, future interest rate decisions are far from set in stone. The strength/weakness of the underlying economies will also affect the value of its currency.

If you intend to move to Spain you should look closely at your financial planning and, if necessary, restructure it to protect you not only against inflation but also the adverse effects of the exchange rate.

British retirees living in Spain tend to keep their savings in Sterling bank accounts and investments denominated in Sterling. They are highly likely to have Sterling denominated pensions. Some transfer an amount of money to a Euro account which can be a buffer against facing an exchange rate risk every time they wish to make a withdrawal. Others merely have regular amounts, such as pension income, sent to their Spanish banks, so every time a transfer is made it is affected by the exchange rate.

One way to overcome unfavourable rates is to use a currency agency. They usually offer better rates than high street banks. You can transfer money on the prevailing “spot rate” or fix a rate for up to two years ahead. The latter option could work in your favour if the exchange rate falls below what it is at the time the arrangement is made. You could lose if the exchange rate improved, but a fixed rate gives you the security of knowing how much you receive each month and that your income will not fall over the period.

A long term solution is to match the currency of your assets to your liabilities. It makes sense that if you are spending in Euros you should hold enough assets in Euros to cover your spending needs. Even if you move to Spain and then return to the UK some years ahead, it is still wise to have around four or five years of your disposal assets in Euros as a safeguard to unfavourable exchange rate movements.

Of course, the exchange rate may well improve but there is no guarantee that it will, and if it does, it is unlikely to reach the favourable level it was when the Euro was first introduced. On the 1st January 2002, when Spain adopted the Euro, the exchange rate was 1.63. A year later it had dropped to 1.53 and the following January to 1.42. It then moved closer to 1.5 and was fairly steady for a few years until last September when it began to drop. By the summer of this year it had fallen to 1.26. The future of the exchange rate is still an unknown and in the long term could climb. In the short term, however, and at the time of writing, experts predict that it could fall even lower.

When you review your portfolio, look at your pension arrangements. If you have a personal or private pension you could switch to a Self Invested Personal Plan (SIPP) where you can choose what investments to hold and in which currency.

Another option for many pension funds is to transfer it into a Qualifying Recognised Overseas Pension Scheme (QROPS) which allows you to change currencies.

QROPS are very flexible and can be set up in Sterling or Euros and so eliminate the currency risk from your pension fund for good.

A financial adviser will explain what the best strategy is for your personal situation.

Full story from www.blevinsfranksinternational.com

Expectations that the credit crunch, weakening pound and diminishing disposable incomes have sounded the death knell for overseas tourism appear a little wide of the mark. As specific markets, such as Lanzarote in the Canary Islands are reporting a bumper increase in British visitor numbers for the first half of 2008.

According to research recently released by AENA, the Spanish airport authority, tourist visits from the UK have in fact increased by a whopping 15.6% during the first half of this year, in comparison with the same period in 2007. With the island welcoming 509,755 British guests up until the end of June2008.

Irish visitor numbers have increased too – with 123,047 tourists from Eire travelling to Lanzarote over the same period. A rise of 5.4% on 2007 figures – and an indication of the islands incredible popularity in the Republic, with Lanzarote attracting more Irish visitors annually than any other destination in Spain.

Other key markets, such as Holland, Austria, Norway and Sweden have also helped contribute to an overall increase in foreign visitor numbers of 5.6% during the first half of 2008. With Germany the only major market returning negative figures – down 13% to date on 2007.

The Canary Island Tourist Board has also recently reported that the number of Spanish nationals visiting Lanzarote is on the rise too. Up 3.7% during the first half of 2008.

Collectively, these figures represent the best first half annual performance that Lanzarote has enjoyed for many years – a trend which if continued will see the island break the one million British tourist visits barrier for the first time since 2003.

Full story from Nick Ball at www,lanzaroteguidebook.com

We all know we will face extra costs when buying abroad - buying, selling and maintaining a property incurs hefty sums. But there are ''hidden'' costs - such as taxes the agent conveniently forgot to mention in the sale price, or Moroccan VAT which rose recently from 14 per cent to 20 per cent - that can catch buyers by surprise.

New research by foreign exchange specialist Moneycorp shows that 45 per cent of buyers budget £9,000 to cover unforeseen costs which, in fact, amount to an average £19,000 - but 24 per cent of participants in the research admitted to incurring costs that were preventable.

One in five blamed lack of knowledge and research, and one in seven thought language difficulties led to the high level of unexpected costs incurred, with legal costs and unforeseen bank charges and taxes the greatest culprits.

While emerging markets - where transparency may not yet be high on the agenda - can be the source of some surprises, the countries where we buy in greatest numbers can also blow the budget. In Italy, France and Greece, buying fees will add 15-17 per cent to the purchase price and in Spain about 10-12 per cent. In Britain, the figure is about 5 per cent.

So where are the hidden costs that are catching buyers out - and how can they be avoided? Moving your money around is a good place to start. "Most people haven't sent money abroad before and aren't aware that brokers offer far better rates than banks," says Stuart Rogers, from Moneycorp, which, according to latest figures, charges up to £3,600 less for buying €100,000 (£78,400) with sterling than some high street banks.

Bank costs can also catch investors unawares. While UK banks do not generally charge to receive money in your account, other countries - notably Spain, whose receiving fees are among the highest in the world - will charge up to 0.5 per cent to receive the money, which means you lose £500 if you are sending £100,000.

"It's always worth negotiating with the bank before you make the instruction," says Rogers. "Ask what they will charge and agree on an amount beforehand, or get a euro draft, which we would accept and the foreign bank won't charge for."

Buying newbuild properties can also throw up some unexpectedly high sums. New homes in Italy and France carry VAT of nearly 20 per cent (in Spain, it's 7 per cent). And while some developers add that tax into the headline price, others don't. "Always check straight away whether VAT is included in the sale price, otherwise you could get a nasty shock," says James Price, from Knight Frank.

Buy-to-let investors should be similarly attentive - in their case, to promised rental yields, says Price. "A developer will advertise some incredible rental guarantee on their project, but establish whether that figure is gross or net and do some close calculations. There are often substantial charges which can take up to 50 per cent off that rental income."

It is not just at the buying and selling stage that investors can be hit. The ongoing maintenance of properties can throw up some surprises, says Price, particularly if you have bought on a typical Spanish or Portuguese urbanisation.

"Each owner pays community taxes to share the cost of lighting, maintenance and infrastructure. If it's a new development with no track record, they can only estimate the annual maintenance costs. And if it's an old development, you could face some significant infrastructure costs and a hefty bill soon after you move in."

As Price says, there shouldn't be any hidden costs when dealing with overseas property. Everything should be transparent and buyers should do their homework. "But there is the odd hidden cost such as Spain's wealth tax, a nominal annual amount which applies to foreign owners, that the agent probably hasn't touched upon and no one else has mentioned to you. They're the ones that creep up and bite you.

"Some of these costs are more punitive than others - and nothing replaces some damn good legal advice."

Safety first: How not to get sold short when buying overseas

Buying

Brokers offer far better rates than banks when moving your money abroad. Break down the asking price of the property as much as possible to unearth any hidden costs such as hefty agents' fees. Check whether VAT is included in the asking price on newbuild properties. Establish whether the rental guarantee is net. If gross, calculate exactly how much will be deducted in service charges. Don't forget extras such as legal fees - far higher in France than the UK, for example - mortgage brokers' fees, life insurance policies that may be necessary and drawing up a will to cover the foreign property. Don't skimp on essential costs such as getting a survey or using a lawyer: it could prove a fatal false economy.

Maintaining

Ask for details of past years' community costs on urbanisations (complexes) and find out if any big infrastructure projects are likely to present a big bill. Ongoing bank fees, commission and changes to exchange rates can add a considerable amount to your outgoings over the course of your mortgage, so seek advice from foreign exchange companies such as Moneycorp, Currencies Direct or HiFX or an emerging-markets adviser such as Validus (www.validus-invest.com). Make sure your property is adequately insured. Some ordinary home insurance policies are not valid for holiday homes. Swot up on the tax laws on rental income on your foreign property as failing to pay could prove costly.

Selling

Check whether you will be penalised with higher capital gains tax if you sell within a certain time frame. Germany imposes high penalties, for example. Look at other ways to reduce that tax bill such as by buying through a company.

Full story from www.telegraph.co.uk

Politicians and local governments throughout Spain are still struggling to decide what should be done about the number of illegal properties which have been built in the country over the last few decades.

According to the website Spanish Property Insight, reports from the Spanish press have revealed that the Popular Party (Partido Popular) has proposed an amnesty for the 50,000 illegally built homes in the Málaga province.

However, the socialist PSOE party, which controls Andalucia's regional government in Seville, opposes any mass legalisation, favouring case by case solutions instead.

Meanwhile, the Grupo Cóndor, an environmental group based in Almería, has called for strict compliance of the law and has urged the Andalucian government to demolish the thousands of illegal properties in the province.

A spokesman for the group said that politicians should be forced to compensate home owners “out of their own pockets” and that “the world should know Spain has acted in a filthy way”.

But the problem with demolitions as a solution is that the Government of Andalucia probably can’t afford it. Demolitions can cost between €30,000 to €36,000 per property, which many home owners would never pay, leaving the government to pick up the bill. Furthermore, although home owners are obliged to pay the costs of demolition if their homes are illegal, retired expats on a UK pension below the Spanish minimum wage of €600 a month, who make up a large number of the affected owners, would be exempt from paying the costs.

The Popular Party has suggest legalising all the properties to put an end to the matter, at least until the new Urban Plans are approved in each municipality.

Full story from www.homesworldwide.co.uk

Can Spain weather the downturn? The Spanish property market has had its fair share of headlines recently. If you were to believe them then the image that comes across is of a country hit by a never ending stream of bad news.

Corruption scandals, illegal building, demolition threats, land grabs, over development, dishonest estate agents, incompetent lawyers, obscene commissions and countless stories of unhappy owners, buyers and investors.

Developers are going bust, estate agents are going out of business and there are bargains for those willing to take a risk with the Spanish property market.

But when you go beyond the headlines a very different picture emerges. Yes, Spain is suffering from the credit crunch, but so are many other countries. Banks are lending less and finance is harder to find. Repossessions are on the increase.

However there is a lot of good news. According to those actually working in Spain in the property sector it is the greedy and the unscrupulous that are going out of business and that can only be good for the property market and those investing in it.

The high end of the market, particularly property in gated communities, connected to golf courses that are well built and have quality finishes are still selling well, according to Paul Rossiter of Carrington Estates.

Although custom from the UK has dropped off there is still keen interest from the Swedes, Germans, Dutch and Russians. For the market to recover it is the quality of the investors and buyers not just quantity that matters.

'There are a lot of speculators arriving who think they can get 30 to 40% off the asking price, but that just isn't happening,' said Andy Welland, who has worked in the property business in Spain for the last ten years. This is a trend seen by many agents. 'I heard of one buyer who viewed a €550,000 property and wanted to offer €350,000, that is not realistic. But you can find good prices, there are deals to be done,' said Rossiter.

Ten years ago Welland witnessed a lot of small businesses like butchers and hairdressers closing down and re-opening as estate agents. He saw the rise - and the fall - of big companies with branches in every town. They came, they saw, they fell by the wayside.

He saw greedy developers asking for mega prices, sales agents earning fat commissions persuading investors to buy multiple properties with unrealistic promises that they could sell before completion.

For developers it was a matter of pile them high, build them cheap. 'People were persuaded to buy beyond their means. Where they should have perhaps bought one or two apartments off-plan they were convinced they could afford five, six, seven, even more,' said Welland.

'I have spoken to five people recently that have lost 30 to 40% because they could not afford to complete. Buying to flip is a very hard game to play. You must be prepared for the worst case scenario and that is to be able to complete.'

Mark Stucklin of Spanish Property Insight agrees. 'The downturn in the market has put an end to speculative herd buying but does not deter genuine buyers who do their research,' he said.

The issue of scandals is being addressed. 'The Spanish government has focused a huge amount of effort on cleaning up the problems associated with illegal building and corruption involving the former mayor of Marbella,' said Daniel Zartesh-Lloyd, operations and marketing manager of Malaga based Duchy Estates.

'The developers who built illegally are currently going through the justice system and properties built without permission are going through a process of negotiation. This does not necessarily mean being demolished,' he added. And as Rossiter points out the land grab issue is confined to one region – Valencia.

The Spanish government is also taking positive steps to make the real estate sector more transparent.

This is confirmed by property consultants Jones Lang LaSalle who's 2008 Global Real Estate Transparency Index shows that Spain is indeed making real progress. Spain is now ranked 16th compared with 18th two years ago.

Dodgy agents are being clamped down on too. 'The Spanish government has got really tough. Officials are conducting snap inspections to ensure that agents are adhering to regulations,' said James Gonzalez, market analysts at Obelisk.

The volume of leads has fallen by around two thirds but the quality has improved. Agents also say they have more time to spend with clients. There is an oversupply of two bedroom, two bathroom properties but not all areas have suffered massive price falls.

Some completed developments are virtually empty but many in Spain are doing fine. 'Certain urbanizations have kept their value very well. What has made Spain so attractive over the years such as climate, beaches and lifestyle doesn't just disappear,' said Zartash-Lloyd.

Full story from www.propertywire.com

The Spanish government is considering allowing commercial airlines to use military routes, which would make travelling to Spain easier and quicker. Some experts feel that such a decision could help to kick-start the Spanish property market.

If the Spanish government decides to let commercial airlines use military routes it would allow a series of new airline routes into Spain to be negotiated, improving accessibility for property investors, reports Overseas Property Professional (OPP).

Experts in the property industry feel that this would be beneficial for Spain's property market: "This is possibly the best news we've had to help kick-start the faltering Spanish property market," said Adam Gale of Costa del Sol-based Duchy Estates.

Increasing the number of airline routes into Spain would help make up the minds of property investors who are as yet undecided on where to buy; Gale added that as long-haul flights become more expensive, investors would "flock" to Spain once more rather than choosing destinations further afield.

More flights to Spain could also provide a bigger holidaymaker market for investors in self-catering accommodation in Spain; OPP points out that holidaying in Spain could save "many hundreds of euros for families choosing short-haul destinations" rather than more distant locations.

Full story from www.holidaylettings.co.uk

Whilst much of Spain is feeling the heat of a major slowdown property prices in the Andalucian city of Jerez are going up.

As much of the Spanish property market is starting to falter, the Andalucian city of Jerez is one of the few exceptions.

While many areas of Spain are currently experiencing a major slowdown in the property market, prices in Jerez are only going one way, and that's up.

"When the Spanish property market started to falter in 2007, Jerez was in a very strong position," said Chris Mercer, director of Jerez property specialists Mercers.

"According to figures from Spain's leading property portal, Fotocasa, price per square metre in Jerez was 46 per cent cheaper than the national Spanish average and a mammoth 76 per cent cheaper than the nearest-neighbouring city, Cádiz.

"In spite of adverse market conditions, Jerez clearly had some catching up to do and the potential for capital growth was obvious, thus keeping the local property market buoyant.

"As we continue through 2008 the effects of a global economic downturn and less favourable exchange rates are of course presenting various challenges, but Mercers is experiencing a steady flow of buying activity both from overseas and domestic customers. With a thriving rental market and under-valued prices, Jerez is still very much a shrewd mid- to long-term investment proposition."

Most famous for being the spiritual home of flamenco, the birthplace for sherry, and centre for Andalucian dancing horses, Jerez is looking forward to a dynamic future.

The city's international airport, already served by daily Ryanair flights from the UK is being improved to include a new runway, enlarged terminal building, plus more parking and is expected to serve four million passengers annually by 2012 (up from 1.4 million in 2006).

Crucially, Jerez airport will become the only Spanish airport, with the exception of Barcelona, to have its own AVE (fast train) connection. The AVE will bring Seville, currently a 45-minute drive or an hour's train journey, within reach of Jerez in just 20 minutes, opening up the possibility for Sevillanos to commute from a lower priced, less congested city.

With affordable entry level prices and a clear exit strategy selling to commuting Sevillanos, Madrileños or international clients keen on a holiday home, retirees who want an authentic Spanish experience within 15 minutes of the coast or taking the buy-to-let route and renting to visitors to the city (hotel occupancy is as high as 85 per cent all year round), Jerez’s property market is the envy of Spain.

Full story from www.homesworldwide.co.uk

A source tells me that some lawyers on the Costa del Sol are up to no good again. Now that their astronomical fees from conveyancing have dwindled to a trickle in the market freeze, they are having to come up with new ways to part clients from their money. This time they have come up with a ruse to sell non-performing mortgage loans as ‘distressed homes’. Investors looking for distress sales on the Costa del Sol should beware.

I’m not sure exactly how it works, as it wasn’t explained to me in much detail, but it goes something like this:

Banks have clients who aren’t paying their mortgages, and the banks would very much like to off-load those mortgages onto someone else. Lawyers are helping the banks out, for a fee, by finding buyers for those debts. But, so I am told, some lawyers are misleading potential investors by presenting the deal as a distressed home purchase, or bank repossession, rather than an investment in bad debt. So investors think they are buying properties at distressed prices, but in reality they are just non-performing mortgage loans.

There is nothing wrong with investing in distressed debt. Some people have made massive fortunes in financial markets out of doing so. The problem here is that small investors on the Costa del Sol are being mislead into buying bad debts when they think they are buying property on the cheap.

I’m told there are various lists of ‘deals’ in circulation from banks which lawyers are using to try and snare investors.

“They are sharks these lawyers, now there’s less work about they are all trying to screw money out of people in other ways,” one estate agent told me.

So if you are an investor looking to take advantage of this market, just make sure you know what you are buying.

Full story from Mark Stucklin at www.spanishpropertyinsight.com

Increasing domestic demand for rental property boosts Spanish buy-to-let market, especially commercial areas and cities.

It’s become a well-known fact that the traditional ‘fly-to-let’ rental market in Spain is suffering from over saturation.

Coastal resorts are certainly as popular as ever, with Spain remaining one of the top holiday hotspots with British and European tourists, but when a situation of over supply hits the holiday property market it certainly makes it harder for investors to make money from homes they wish to earn rental income from.

However, the good news is there are some lesser-explored, more profitable pockets of the buy-to-let investment property market in Spain that previously were the well-kept secrets of professional and institutional investors only.

Now that real estate prices on average have adjusted and fallen across most of the Spanish market, it makes it a very positive time to explore these alternative buy-to-let approaches in Spain.

Mike Hamilton, sales director at Casas de Lorca and an expert on the Spanish investment property market, said: “The main investment approach that has seen larger investors profit substantially on an ongoing basis is buying properties for rent within the larger commercial and university cities in Spain where domestic demand is not abating.

"In fact, the city-based buy-to-let property market in Spain has suffered nothing of the negativities of over supply, with many urban areas actually not having enough rental homes to meet the demand.

In the capital, Madrid, for example, we are hearing reports that 62 per cent of apartments which become available are being rented within the first month alone.

“The low supply of good quality rental property is also affecting rental prices. For example, average monthly rents in Lorca have gone up from €400 a month to €550 over the last three months, and as the date for the opening of the new University of Lorca approaches, demand is expected to further intensify.

"Therefore, property investors looking for a market where there is strong demand for property, more attractive underlying real estate prices and strong potential for consistent year-round rental income should be focusing their search on Spain’s most in demand cities.

"Each day we are turning down clients looking for rental apartments. When one becomes available it is rented within the week, sometimes the same day!”

Spain’s local population has suffered in much the same way as the British population from rising property prices in recent years.

This has led to a situation where more Spanish than ever are seeking rental accommodation because they cannot get onto the housing ladder.

The Spanish Prime Minister has pledged significant financial help, not just to first-time buyers, but more interestingly for buy-to-let investors too.

Direct monthly financial contributions of €200 a month are being offered by the Spanish government to people under 30 years old to help with rental payments; proposals have also been made to help tenants raise deposits; and for landlords who agree to rent properties to under 35s to help them get into private accommodation, attractive taxation incentives have been proposed.

In Lorca, in the Autonomous Community of Murcia, where a new university campus is about to reach completion, demand for city-based rental accommodation has already pushed average rental rates up significantly.

The new university is the fourth campus for the University of Murcia and opens in 2009. Demand from professors, lecturers, administration staff and, of course, students is expected to have an overall positive and dramatic effect on the local housing market.

Property investors quite possibly have a once in a lifetime opportunity to buy property off-plan at below market prices as developers work hard to sell off stock, or to buy resale units in what is very much a buyer’s market, and earn rental income year-round from the domestic market who are being aided and therefore encouraged to rent.

What’s more, in an area like Lorca where there is a specific and undeniable reason for demand to surge, a buyer making a purchase today has an unprecedented opportunity to profit significantly from rising rental rates, and from potentially appreciating assets whose values will likely be increased as the property market in the city becomes more in demand.

Full story from www.homesworldwide.co.uk

Morgan Stanley, the investment bank, has issued a major alert on the health of Spanish banks, warning that a replay of the ERM crisis in the early 1990s could wipe out the capital base of weak lenders exposed to the property crash.

"A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009," said the report, by Eva Hernandez and Carlos Caceres. "The probability of a crisis scenario similar to the early 1990s is increasing. If the ERM (Exchange Rate Mechanism) scenario were to become reality the main concern would not be earnings, but capital," it said.

"We estimate that a non-performing loan ratio of 10pc to 15pc for developers' loans would fully erase earnings in 2009 and would represent between 20pc to 30pc of the current tangible capital base of Banco Popular, Sabadell and Banesto," they said.

The grim report comes amid a fresh flurry of horrendous data from Spain. The ICO consumer confidence index has plunged to a record low of 46.3. Lay-offs continued to surge in July as the building industry - 13pc of Spain's workforce - stepped up its job purge. Unemployment has risen by 457,000 over the last year, pushing the rate to 10.4pc. "These figures are very disturbing", said employment chief Maravillas Rojo.

Finance minister Pedro Solbes told El Pais that the outlook had darkened dramatically over recent weeks as the global oil shock and rising interest rates combined with Spain's home-grown housing crisis. "The economic situation is worse than we all predicted. We thought it would happen slowly but instead it has hit fast," he said. Mr Solbes admitted that the property boom had degenerated into a "bubble" but said there was little the government could reasonably do about it. "What was the state supposed to do? Stop people building houses? That wouldn't be reasonable. Tell the banks who they can lend money too? We couldn't do that either. We warned that building 800,000 homes a year was not sustainable: and that granting mortgages for 40 years was folly, but there are certain things the government cannot prohibit," he said.

The root cause of the bubble was the extremely lax monetary policy imported by Spain after it joined Europe's monetary union. Interest rates were slashed on EMU entry, and then fell to 2pc until late 2005 - far below Spain's inflation rate. However, Mr Solbes has been reluctant to link the crisis to Spain's euro membership. As Europe's economics commissioner at the launch of the euro, his career is inextricably tied up with the whole EMU experiment.

For now, smaller Spanish banks are getting by on funding from the European Central Bank, in many cases issuing mortgage bonds with the express purpose of using them to secure loans from Frankfurt. ECB loans have tripled to €47bn over the last year, causing rumblings of concern among regulators. The ECB is not allowed to prop up banks with long-term funding under EU treaty law.

Morgan Stanley said there was 40pc chance of a "bear scenario" leading to a 0.5pc contraction of the Spanish economy next year, with a mounting risk of an even more extreme case that replicates the ERM crisis (or worse) and leads to a 1.4pc contraction in 2009.

The report said construction investment made up 18pc of GDP last year, much of it funded by foreign investors. The concern is that a "sudden reversal of capital inflows" could leave the economy unable to finance its current account deficit, now 10pc of GDP - the world's second biggest after the US in absolute terms. The corporate sector has debts equal to 130pc of GDP. This too requires foreign funding.

Morgan Stanley said it had become concerned about the banks after the €5.1bn (£4bn) collapse of Martinsa-Fadesa, the country's biggest builder. Loans to developers make up 26.1pc of total lending for Sabadell, 21.9pc for Banesto, and 19.4pc for Popular.

This leaves them highly vulnerable to an ERM-style bust that could push non-performing loans for developers to 14pc. "Such a scenario cannot be disregarded, in our view," it said, adding that the developers may face an even more drastic challenge than they did in the early 1990s.

The "extreme bear" case would lead to further dramatic falls in bank shares: Banco Popular (-61pc), Sabadell (-56pc), Bankinter (-51pc), Banesto (-42pc), and BBVA (-35pc). The report based its estimates on a stress test that replicates what happened in Britain in the early 1990s, as well as Spain's own travails during that period. It said BBVA enjoys a solid client base and is likely to be a "winner" once the storm passes.

The condition of Spain's lenders is a source of intense controversy, and the Spanish officials bridle at claims by foreign critics that there is any problem. The banks certainly dodged the US sub-prime debacle, thanks to restrictions by Bank of Spain on the use of off-books investment vehicles. Home equity withdrawals and "piggy back loans" are rare. Mortgages were mostly limited to 80pc of house prices, at least in theory. The great unknown is whether those price estimates bear much resemblance to reality. Ramon Lobo, a former bank auditor, said valuations were routinely inflated by as much as 25pc, allowing the sub-prime-style abuses through the back door. The Bank of Spain denounced the use of inflated appraisals in 2006.

If the practice was as widespread as feared, the default rate on €320bn of Spanish mortgage paper sold to investors worldwide could prove higher than expected.

Spanish house sales fell 34pc in May from a year earlier, and mortgages were down 40pc. The consultancy Facilismio said yesterday that prices had fallen 6.7pc in July from a year earlier, but anecdotal reports suggest a much steeper drop. With gallows humour, Spanish journalists have begun using the term "Costa del Crash". The UK estate agent Savills said Britons are having to accept price cuts of 20pc to 30pc if they need to sell their villas in a hurry.

The vultures are starting to circle around the hapless Mr Solbes. Critics are calling for his head, accusing him of covering up the true scale of the downturn before the re-election of the Socialists in March. This seems unfair. Mr Solbes continued to dismiss warnings of a crisis as "enormously exaggerated" long afterwards. He appears to be genuinely astounded by what has occurred.

Full story from www.telegraph.co.uk

A growing number of British buyers who have invested in homes in Spain are planning to take legal action against property developers who have gone out of business.

According to reports on Telegraph.co.uk, lawyers specialising in property are noticing a surge in the number of British buyers contacting them for advice.

Some have paid as much as 50-60 per cent of the price of homes that will never be finished, while others have already taken possession of properties on half-built developments that won't be completed.

Although many may eventually get their money back it is a long process and courts in Spain are slow.

Just last week Homes Worldwide reported that one of Spain's largest property developers Martina-Fadesa, filed for insolvency, joining 60 other firms which have gone bankrupt since the start of the year when the bubble finally burst on Spain's decade-long construction boom.

Although around 1,000 people have already taken possession of their properties at Martina-Fadesa's latest resort, Costa Esuri in Ayamonte, 700 of which are British, it is full of unfinished properties, a half-built hotel and a golf course which is nothing more than bare earth.

According to the Telegraph, many of those properties that have been finished are not connected to water or electricity, and a centre containing shops and restaurants has also been left unbuilt.

It is a far cry from the dream resort investors believed they were buying into, and those who bought to homes to rent out to holidaymakers will now see them stand empty as there is little rental potential on a half-built resort.

More and more Brits are now consulting lawyers to see what action they can take as their dreams of owning a home in Spain have gone badly wrong.

Full story from www.homesworldwide.co.uk

The Marbella town council has decided to start issuing licences of first occupation (licencias de primera ocupación) before the town’s new urban master plan gets final approval. First occupancy licences will be granted to owners of Marbella properties that are expected to be legalised by the new urban plan (Plan General de Ordenación Urbana).

The decision to grant first occupation licences before the urban master plan becomes law was a contentious one that was passed without cross-party support. Marbella’s Mayor, Ángeles Muñoz, of the right-of-centre Popular Party, won the vote thanks to her majority on the town council. The opposition PSOE socialist party abstained in the vote, and the United Left’s town councillor voted against it.

Mayor Muñoz justified the decision saying that it will “generate confidence and stimulate the economy, as well as sending a message of absolute peace of mind to owner of homes that do not have a licence of first occupation.”

The Socialists abstained on the grounds that the move lacks adequate legal guarantees, given that the urban plan has not been finally approved.

The first draft of the new urban plan was approved in July 2007, and the final draft is up for provisional approval in September, with final approval expected to follow in the Spring of 2009. Given recent changes to the draft, largely concerning the compensation mechanisms for planning infractions, the plan will have to be subjected to another round of public consultation after provisional approval in September. With that in mind, the Socialists may be right about the town hall jumping the gun.

Full story from www.spanishpropertyinsight.com

An online debate amongst readers at the website of ‘El Pais’ - Spain’s leading daily – provides some insight into what the Spanish think about the country’s property and mortgage crisis.

Many of the readers point the finger of blame at the banks and the government for inflating a property bubble that has now burst, leaving ordinary Spaniards to cope with negative equity and rising unemployment.

One participant, on the other hand, points out the collective responsibility for the bubble, which many buyers helped to inflate by paying exorbitant prices for homes.

“Although we could see this explosion coming, I don’t think even the biggest pessimists thought that the crisis would get this bad,” he writes. “But the blame can’t be pinned on the banks and property companies alone. Nor on the different governments that have been in power. At the end of the day we have all helped to created the bubble by paying exorbitant prices for flats and houses, using impossible mortgages, and ignoring our own resources. I remember friends and colleagues saying “property prices have never fallen”, taking it for granted that if they have never fallen in the past, they will never fall in future, and that “there is no safer investment than the real estate sector”. In fact, any time you hear comments like that about any type of investment, you can be sure that a bubble is in preparation.”

Another participant, who runs a kitchen fittings company, described his experience of the crisis. “I have a company making kitchen fittings that I started just over a year ago,” he explains. “I started with 16 employees, and now we are down to 11. Domestic demand for kitchen equipment is down 30%, and more than 40% on new developments, where the crisis will really be felt next year, as at the moment we are still fitting out projects started a year and a half ago. Today there are no new projects in the pipeline for next year, as nothing is being sold or financed.”

Another participant, a professor of finance and economics, blames the government for encouraging “the most rancid, speculative, financial capitalism” at the expense of “diversified and economically sustainable growth”. He proposes temporarily confiscating all the profits of non-industrial companies, especially banks, and using them to pay for public investment and government spending.

Many other contributors complain of having to spend everything they earn on paying a mortgage, with more pain to come as interest rates just keep on rising.

Full story from www.spanishpropertyinsight.com