During the last decade vast swathes of the Spanish coastline have been developed in a construction boom that has made the nation one of the fastest growing economies in Europe. Spanish house prices have risen by more than 200 per cent in that period, encouraging many overseas investors - a large number of them British - to purchase property with the promise of short-term financial rewards.
But in the second quarter of this year the rise in house prices dipped below the rate of inflation for the first time in 10 years.
Analysts believe that because of low interest rates and poor regulations speculators have saturated the market.
Last year more than 800,000 homes were built in Spain, more than in Britain, France and Germany combined.
The result is a long anticipated downturn in the market with the worst hit areas in the big cities and on the Costa Blanca and Costa del Sol, where more than 250,000 homes are British-owned.
At the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca but 300 have closed this year, according to Enrique Llopis, honorary president of Alicante's College of Real Estate Agents. "It is a symptom of the property bubble bursting," he said yesterday.
"Demand is 10 per cent lower than it was a year ago and people are having to sell their property for less than they hoped."
Earlier this year the Organisation for Economic Co-operation and Development said that Spanish house prices were so over inflated that during 2007 the country would see "an abrupt adjustment in which prices will plunge".
The Spanish government said this week that the housing boom was coming to an end, bringing with it a rise in unemployment due to the expected further decline in new construction contracts being awarded.
In a bleak assessment of Spain's prospects, the Socialist government admitted that the country faced an uncertain future. "We face a period of uncertainty and lack of clarity," said Pedro Solbes, the finance minister. "This is always bad for the economy."