These include a 3 billion euros credit line from the Institute of Official Credit, which will assist Spanish property developers putting unsold houses up for rent, and real estate investment trusts (REITs) which they hope will boost investment.
 
But some Spanish property experts believe that the measures are too little, too late.

"Given the hundreds of billions of euros of debts accumulated by developers in recent years, fresh funding of 3 billion euros is a drop in the ocean that is unlikely to make much of an impact," says Mark Stucklin of Spanish Property Insight. "And opinion is divided as to what good, if any, the introduction of REITs will bring. For a start, the timing couldn't be worse – in the present market, most investors are giving Spanish property a wide berth.

"All told, the government's new measures may do nothing more than give breathing space to a few favoured developers at the tax payer's expense."

Stucklin believes that Spanish property is unlikely to recover anytime soon, due to the downwards pressures of 5.3 per cent inflation, falling household formation, a property glut and increasingly tightening credit.

"As uncertainty continues in the financial markets, banks have become stricter with their lending standards," agrees Colm Murphy of Property Tax International. "Over half of Spain's banks have reduced the amount they are prepared to lend against the value of the property insisting the clients pay larger down payments than in the past, which is effecting borrowers ability to meet the tough lending criteria even further."

Measures are certainly needed to shore up Spanish property developers and boost the  country's property market, particularly after the collapse of big developer Martinsa-Fadesa last quarter. This move left 12,500 of the developer's clients, many of them British, wondering what will become of their money. Now, statistics from Spain's Institute of National Statistics (INE) reveals that the market has shrunk every month this year until may, with the resales market suffering the most.

Although investors may eventually benefit from Spanish property bargains, many experts think that prices will fall before they rise. "The Spanish property market is in a slump, and I dare say we are closer to the beginning than the end," says Stucklin. "Standards and Poor's latest report says the slump will be 'long and painful' and forecasts a prolonged decline in Spanish property prices. As Standards and Poor points out, even the Bank of Spain thinks that property prices are overvalued by 30 per cent."

The message to investors in Spanish property is clear: proceed with caution.

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For more information visit:
www.spanishpropertyinsight.com

Article first published 22 September 2008