The rain in Spain

Spain:The original destination for sunshine-lovers fed up with slumming it with the masses in overcrowded holiday complexes, an estimated 50,000 Irish people are thought to have their names on the deeds of a Spanish property.

However, property prices have now slowed to their lowest rate in eight years, while the country is starting to suffer from a housing glut, with as many as three million empty homes.

Elaine Higgins, managing director of financial advisers IFG Spain, strongly believes that people should only buy in Spain if they actually like it as a place where they want to spend time.

"Spain will always be attractive because of its climate. It has very good transport and communications links, a reliable health service and no real language problems."

However, the recent construction boom - there are building permits for 862,000 homes and demand for only 500,000 - is "concerning", she notes.

Areas around Murcia and Alicante "seem to be full of construction cranes", Ms Higgins says. As a result, it might take a buyer up to two years to sell a property in the current market.

"Buying in Spain because you want to make a quick turnaround of profit is not a good idea," she says.

Buyers in Spain take an "immediate hit" of 10-13 per cent of the purchase price in legal costs, taxes and stamp duty. If the price of a property drops 10 per cent, buyers could find themselves 20 per cent down on their investment, she explains.

People who have paid a deposit on a Spanish property but have not yet completed the transaction are the most vulnerable to falls in property prices. This is because some Spanish banks use the value of the property on completion, rather than the actual purchase price, when working out the maximum amount they will lend.

If property prices fall in the interval between the signing of the contract and the completion of the purchase, buyers could find that their Spanish mortgage will not cover the balance of the price they have already agreed with the developer. This will force them to come up with extra cash from another source, Ms Higgins says.

Alvaro Valera, director of Spanish bank la Caixa, which has linked up with Bank of Ireland to provide mortgages to Irish buyers, says that it will lend on the basis of the purchase price.

He says that the Spanish property market is in the middle of a soft landing - the phrase used to describe the end of a property boom in which nobody gets financially hurt.

"In our opinion, Spain is obviously a safe country to buy. Over the past decade we have had capital growth of more than 10 per cent per annum. And now it is 6-7 per cent per annum, which is not bad at all," Mr Valera says.

But doing your homework will still help, he adds. "Our recommendation is that buyers should seek independent legal advice and should get familiar with the area in which they are buying."