According to a new report from Aguirre Newman, the Spanish residential property market has not yet hit bottom and could drop another -27% in 2010, as overall property transactions in 2009 dropped by around -41% compared with 2008.

The report, Coyuntura Global del Mercado Inmobiliario Español, warned that bank valuations continued to overestimate the true worth of property in Spain and that the housing market will remain depressed as banks sell off their stocks of repossessed homes.

There are currently 610,000 new homes in Spain which are unsold with a further 380,000 in the final stages of construction and 520,000 second hand homes available for sale.

Javier Garcia-Mateo, director of analysis and investigation, said: ‘Current home price estimates do not reflect true market values. Banks and real estate companies that own or have financed unsold new homes will have to accept price cuts of around 27%.’

However, the report does expect office and retail rental prices to stabilise in 2010, ahead of any possible recovery in 2011.

Banco Santander, Spain’s biggest bank, together with its consumer unit Banco Espanol de Credito SA, has acquired real estate valued at €4.1bn from failing developers. With analysts warning that if this is put on the market in 2010 the industry will be suffer hugely.