Spain’s residential property market is heading for a hard landing, as tightening credit conditions exacerbate problems of oversupply and years of rampant price inflation, figures released Wednesday confirmed.

Completed house sales for January dropped 27 per cent year-on-year, according to the National Statistics Institute (INE), while total lending to home-buyers fell almost 28 per cent to €13.4bn ($21bn, £10.5bn). The value of the average mortgage was down 3 per cent, to €142,794, despite higher financing costs.

The figures, based for the first time on the change of ownership of properties, are the most telling confirmation of Spain’s economic downturn since the general elections of March 9, in which the ruling Socialists were returned with a bigger majority. The economy, and in particular its dependence on a rapidly decelerating construction sector, was the central theme of the election and poses the biggest challenge to the government of José Luis Rodríguez Zapatero, the prime minister.

Mr Zapatero has promised to step up public works to offset the housing downturn, and provide retraining incentives to soak up the widening pool of unskilled labour left without jobs.

The credit crunch is also driving a growing list of small and mid-sized developers and builders into temporary receivership. On Wednesday, Cosmani, a Madrid-based property group, became the latest to seek court protection from creditors as slowing sales limited its ability to meet monthly interest payments. Last week SEOP, the housing construction group, went into administration after its clients stopped paying their bills.

According to INE, sales of homes and apartments suffered the biggest decrease in January, down more than 35 per cent year-on-year to 32,400 units. New home sales in January slipped almost 15 per cent to 29,400.

According to some analysts, Wednesday’s figures reflect only part of the story, as they exclude some off-plan homes sales.

Citi, the investment bank, estimated in a report that these were down by as much as 60 per cent year-on-year at some companies, as it forecast a 25 per cent decline in net profits this year at Realia, one of Spain’s biggest listed property groups.

Spain’s tourist hotspots have been hardest hit. According to a report by Aguirre Newman, the property consultants, residential estate developments in some parts of the Mediterranean coast now take an average of four years to sell, compared with a few days at the height of the property boom four years ago. About half of the new apartments on the Costa del Sol are sitting unsold, it says.

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