They are still the biggest buyers of Spanish property but the numbers have dropped by 80 per cent since 2006. The Germans are not picking up the slack, but other northern Europeans are showing interest. The question is whether the market has further to fall. Rupert Wright writes
The Spanish coastline remains one of the most desirable places for foreign investors to buy property.
It offers reliable year-round sunshine, is priced in euros so there should be minimal currency risk, and it has everything from golf courses to flamenco dancers.
The British, in particular, love it, and last year they were the biggest group of foreigners buying property in Spain.
That is the good news. The bad news is that they may be the biggest group, but their numbers are falling fast. More than 4,500 Britons registered Spanish house purchase deeds last year, down from 12,419 in 2008, when the economic crisis began and house prices plummeted.
Look back even further to 2006 and sales to the British have collapsed by 80 per cent. Back then the British bought more than 23,000 Spanish properties a year and represented about 70 per cent of the expatriate holiday-home market.
The next biggest nationality was the French, buying 1,627 homes last year, a 23 per cent increase in a year but still lower than the number of British buyers.
Are there the stirrings of a recovery? Compared with 2009, house sales to foreigners jumped 4.4 per cent last year. However, it is too early to call the bottom of the market although one property analyst sees some reason for optimism.
"What we are seeing is increased diversification of demand across different nationalities," says Mark Stucklin, the head of Spanish Property Insight, a consultancy. "Whereas before it was dominated by Brits who bought more than 70 per cent of all sales, now there are buyers from all over Europe and further afield.
"Even the Gulf and China are taking advantage of reduced prices and in some cases distressed sales from banks who are prepared to offer very attractive financing. It may not be the bottom, but it's certainly beginning to look interesting."
According to Jose Luis Suarez, a professor at IESE Business School and one of Spain's leading property analysts, the holiday-home market fuelled by foreign demand could well recover before the domestic market for primary housing. Northern Europeans are back, with Swedish buyers up by more than 100 per cent and Norwegian interest rising by 58 per cent.
While there were fewer British, Irish and Danish buyers, the big question on the Spanish coastline is this: where are the Germans?
Once caricatured by the British tabloid media as up early every morning to lay their towels on the sunloungers, they are hardly rushing in to replace the Brits as the big buyers on the Spanish coast.
Without the support of Europe's largest economy, and with the British struggling to cope with the strong euro, where are Spanish house prices heading? Down, according to Nouriel Roubini, the bearish economics professor of New York University who correctly predicted the financial crisis.
"Spain is the reality that everyone is ignoring," he warned, speaking at a conference in Madrid. Thanks to high unemployment and the housing bust he forecasts prices will fall an additional 25 per cent.
The Bank of Spain thinks it is not as bad as that, insisting the market will bottom out 25 per cent below the peak, having fallen 15 per cent so far. If so, this crisis will have been as bad as the 1970s, when Spain went through wrenching change after a property bust and its transition to democracy.
Josep Oliver, the economics professor at the University of Barcelona, agrees that prices have fallen 15 per cent and will drop a further 10 per cent if past housing busts are anything to go by, and if housing affordablity is to return to "reasonable" levels.
Angel Cano, a director of BBVA, one of Spain's biggest banks, says prices have already fallen 30 per cent since the peak and have an additional 5 per cent to 10 per cent to go before they bottom out. He also says prices have fallen by half in some coastal areas, with large concentrations of holiday homes.
Jose Blanco, the minister of public works, is confident the bottom has been reached, although he is perhaps a lone voice. Prices will not fall much more because "they have already fallen enough", he argues.
In its latest economic report, the Spanish Banking Association says the property sector adjustment is not yet over, and that both prices and stocks have to fall before things will get better.
But Mr Stucklin is optimistic. "Spanish property, particularly on the coastline and in the best places such as Barcelona and Madrid will come back. It may take two, three, even four years, but when it does, it will come back quickly, and prices will rise sharply."