Despite the property market crash in Spain, residential property is still over-valued by 27% according to a report by Aguirre Newman.

The report said that the major problem is the huge number of unsold homes, with an estimated 1.5 million homes on the market, with resale properties, new-builds and those close to completion making up the stock. According to BBVA, Spain’s second largest bank, Spanish property prices were 30% over-valued, but have only fallen -10% so far, therefore they have to fall another -20% before the correction is over. The bank believes this will take another two to three years as prices have fallen by -7% this year, will decrease by -8% in 2010 and -5% the year after that, therefore prices won’t stabilise until 2012.

Aguirre Newman predicted that the biggest price falls will be in the locations that were most developed due to the high amount of supply, so areas around Madrid and Mediterranean provinces like Malaga (Costa del Sol), Castellon (Costa Azahar), and Tarragona (Costa Dorada) will suffer. In contrast, prices will fall the least in Orense ( Galicia), Navarra, and The Balearics.

Also a new report from BNP Paribas Real Estate has stated that banks in Spain are now Spain’s biggest property companies, having repossessed property as loans went bad. It states that they will have to offer discounts of 50% in 2010 in order to shift some of their property stock.