In Spain, 620,000 properties are built a year – four times more than in the UK, which has a population that is 20 million larger. At the moment even more – around 800,000 properties – are under construction: it is absolutely impossible that all will sell.

The figures can be put into perspective by research from Datamonitor, which says that 250,000 homes, equivalent to more than one third of tourist properties in Spain, are owned by Britons.

A particular problem for Spain has been the sheer amount of corruption going on: developments were built illegally, with or without planning permission, with ‘bungs’ which are simply added to the sales price.

No doubt the practice has helped to fuel runaway house price inflation at more than 170% since 1997. The Bank of Spain says Spanish homes are 30% overpriced, although it could be even more. Another common practice in Spain involves part of the purchase price being paid secretly in cash in order to avoid taxes. While this practice is said to be decreasing, it prevents the true property price being made known.

Indisputably, as in America, property prices in Spain are now falling. However, it is the collapse in the share prices, up to 66%, of Spanish property companies that is really causing most concern, as this could herald something far worse. Indeed, sentiment is already proving a factor: the panic selling of shares in Spanish property companies also caused the shares in Spain’s second largest bank, BBVA, to fall, because of the number of property-related loans it has on its books.

Freefall

Property prices themselves could go into freefall, affecting the thousands of UK property investors and those with second homes.

Spanish families have a lot of debt around their necks, just as in the States, where the sub-prime mortgage scandal has led to more than a million repossessions.

Nor should anyone underestimate the importance of

property in the Spanish economy. Construction is a huge employer, accounting for one third of all new jobs created last year in Eurozone. It represents 18% of economic output in Spain.

Thus a downturn in the property market will fuel unemployment and deal a major blow to the Spanish economy as a whole.

As far as UK property buyers were concerned, the Spanish property boom was largely driven by the fact that Spain was almost all there was: the Costas are accessible, cheaper than France, with guaranteed sunshine. Anyone buying a holiday home in the Costas could have been certain of letting it out successfully: Brits aspired to go to Spain on their holidays. Now they are more adventurous, tourism is dropping, and in any case, there is a glut of holiday villas and apartments.

While Stuart Law, of Assetz, which sources investment properties for clients all over the world, does not deny that property prices are going down, he does not think it is necessarily a bad thing.

“This could be good news for the property market, as it will reduce the high levels of housebuilding and also decrease levels of illegal housebuilding in Spain, which is very distressing for buyers when they discover their purchase is not secure.

“Falling Spanish house prices in real terms is actually old news,

not least when talking about new-build properties in the tourist locations, as developers have been offering discounts for two years now in an effort to maintain their sales volumes. However, these price reductions have not shown up properly in the house price indices.

“The reason for this is that black money (cash passed over the table at the time of purchase to reduce Capital Gains Tax) has been reducing over the last two years or so under legal pressures, which has led to reported prices of sales transactions increasing. This has counteracted the actual new-build price reductions.

“The net result is that the rate of property price increases has lowered to more moderate levels over the last two years, but a lot of the froth in terms of pricing has been taken off the market in that time. Two years ago, when Spanish new-build house prices did suffer a correction, when developers started to discount and investors got caught out when trying to flip properties, it was very little reported.”

Spanish housing minister Maria Tujillo is among those urging British property owners not to panic, saying the property market is heading for a soft landing rather than a crash.

Certainly, a sell-off by British owners could have a major impact in popular tourist areas. However, those who have held property in Spain for long enough won’t mind too much, as they will have seen the value rise by around 10% per year and can afford to take a cut in price.

The ones most affected will be those who have bought more recently and who may want to cut their losses quickly, particularly if they have bought off-plan and are in a position to do so.

It’s probable that the really canny investor has long moved on to emerging markets, such as Poland, Bulgaria and Turkey.

They offer keener prices, less development and different attractions. But also, it has to be said, different risks.