Talk to most people involved in property on the Spanish Mediterranean coast and they will tell you that the market is flat or depressed (depending upon the area). So private research is likely to give you a quite different picture of the market to the government’s figures.

There are various factors that would explain the coastal property market’s weakness, which adds credibility to this scenario.

First of all, the off-plan investors who so distorted the market between 2001 and 2004, and who made up over 50% of the market in some areas (my estimate) have largely disappeared.

Buyers are now people looking for holiday homes or relocation properties – end users rather than speculators / investors – who are fewer in number and much more cautious about buying. You don’t see dollar signs in the eyes of these buyers.

Euribor and Spanish mortgage interest rates are rising, which increases the financing costs of buying Spanish property, which in turn squeezes purchasing power. Mortgage lenders are getting more nervous as a result, imposing stricter lending conditions, which reduces overall access to borrowing. This acts as a brake on demand for Spanish property.

At the same time, due to the absurd number of housing starts in Spain in recent years, there is a glut of properties on the market in many popular areas, with off-plan investors and developers all trying to sell to the same reduced number of home buyers.

With these factors at work in the background there is plenty of anecdotal evidence to suggest that prices for average apartments on average developments in average areas are stagnant or falling. This observation contradicts the government’s figures showing Spanish property prices rising by between 8.6% and 18.6% in coastal areas.

So which version is correct? The Spanish government’s figures or the observations of people involved in the market on a day-to-day basis? Personally, I have my doubts about the government’s figures, which I suspect of exaggerating property inflation in Spain. The Government gets its figures from authorised appraisal companies, and it’s no secret that appraisal companies have been helping their main clients – mortgage lenders – for years by producing ‘optimistic’ valuations. This doesn’t mean to say that the government’s figures are worthless; far from it - they are still useful for identifying trends and comparing regions. However I do suspect the governments’ figures of exaggerating property price increases in many parts of Spain over the last few years.

Even if the government’s figures aren’t entirely accurate, it doesn’t follow that all regions in Spain are suffering from depressed property markets. The only areas that really appear to be in serious trouble are those where they have recently built an enormous amount of mediocre property in mediocre locations. Otherwise, relatively attractive areas free of excessive new construction are subdued compared to previous years, but not exactly in crisis, and it looks like there is a flight to quality going on, with the old rule of ‘location, location, location’ proving itself once again.

For instance the Balearic property market, where new development has been more restrained, appears to be holding up, and on the Spanish mainland good quality properties – mainly resale – in very localised areas with excellent surrounding appear to be selling well. In the cities, Barcelona, Palma, Seville and Valencia are all still enjoying strong demand, according to local real estate professionals. The market is also performing in different ways according to property types and budgets, as one would expect. In the next few months I will prepare a report on the areas and types of properties that are doing best in a difficult market, so make sure you sign up for the news bulletin (it’s completely free) if you want to know when this report is available.