Costa del Sol, supply has exploded and most homes have been built on borrowed money. The developers have mortgages they’ll never, ever repay.

Spanish banks’ exposure to housebuilding is higher than in the UK, ranging from 25 to 50 per cent of their balance sheets. Some 18 per cent of the country’s gross domestic product is tied up in construction and associated industries. But the real shocker is the number of new homes - more than three million since 2004, half of them on the coast. Some 800,000 were started last year, despite the absence of any obvious demand.Those who bought after 2003 with a view to selling quickly have accepted price falls of up to 40 per cent, say local estate agents. Even developers such as Taylor Woodrow concede that people ‘have had their fingers burnt’. The company has cut prices on three-quarters of its Spanish stock by as much as 25 per cent. However, most estate agents say anyone brave enough to buy a new home now should be able to negotiate further big reductions.As if the new-build oversupply was not enough, there are also homes on the market that have been repossessed and are being auctioned by banks. Two-bedroom flats with balconies typically cost £77,000, according to www.propertyinspain.net. ‘Many are just a few years old on developments with communal pools and grounds, secure parking and close to beaches,’ says website spokesman Kevin Barnett. He says banks ‘want only their loan and repossession legal costs back’.It is hardly surprising, then, that few sellers are able to shift their homes. They are reluctant to cut asking prices because they want to clear their mortgages, but without big reductions they cannot compete with cheap repossessed homes. Briton Richard Netherside put Calquico, the large restored farmhouse he lives in just north of Barcelona, on the market for €945,000 in August 2007. It is a handsome, three-storey property, with a large outdoor pool and extensive gardens. But his timing was bad - just as the Spanish market slumped, a few weeks before the Northern Rock crisis and as sterling slumped against the euro.
He registered with 10 local estate agents, but only two bothered to visit. By May, no prospective purchaser had been to view it, so he cut the price to €830,000. It now stands at €749,000 (£585,000). ‘With the UK market falling away and the local buyers unable to get loans, we accept we are probably in for an extended wait yet,’ says Mr Netherside, who has set up his own website, www.calquico.com, to try to attract buyers. Kevin Sheehan, a Surrey businessman, has been luckier, although he had to work hard to sell his five-bedroom holiday villa near Valencia. It was originally advertised in the summer of 2006 for €420,000, but after a year there had been ‘nothing even remotely looking like an interested buyer’. In August 2007, he took matters into his own hands and spent the month contacting agents across the world in a bid to attract any interest. He sent 32,000 emails, registering the villa with agents and on free sale-by-owner websites. ‘I had a large number of speculative offers of half the price, but I held my nerve. I reduced it to €320,000, but wouldn’t drop further. In the end I sold it for fairly close to that figure,’ he says.Experts suggest these are just two typical examples among tens of thousands. ‘People have stretched themselves too much and developers have built one ugly scheme after another,’ explains Mark Stucklin, a British property analyst who lives in Barcelona and runs a website for buyers, www.spanishpropertyinsight.com.‘On the Costa del Sol, supply has exploded and most homes have been built on borrowed money. The developers have mortgages they’ll never, ever repay. They owe far more than they’ll get from buyers,’ he says.On top of it all, the exchange rate has worked against sellers in Spain hoping to find British buyers. In October 2007 a €150,000 apartment would have cost about £104,000; now it is roughly £119,000 thanks to the strong euro.In the wider Spanish property market, sales are down 31.5 per cent against this time last year. The biggest slump has been in second-hand homes - sales volumes are down by a half.Many areas with new homes look like ghost towns. A planned new suburb of the inland Catalan town of Vic lies empty. It should by now have hundreds of new homes for Spanish professional owner-occupiers, but one developer has filed for bankruptcy and two others have mothballed their schemes indefinitely. As a result, acres of Vic’s building sites are desolate and the show homes are closed. Only the guard dogs remain.

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