Spain has long been the number-one destination for British buyers, and hundreds of thousands of us already own property there. But, with the country’s property market looking distinctly wobbly, and some muttering darkly about an impending crash, would you be mad to buy a home there this year?

Not necessarily. As seasoned investors know, where there is trouble there is opportunity, and distress may mean bargains for clued-up buyers who know how to exploit the market.

David Irvine, 55, a businessman from Glasgow looking for a semi-permanent home in the Puerto Banus area, on the Costa del Sol, is among bargain-hunters already on the case. “With the market stalled, and interest rates rising, I’m quite clear that 2008 will be a disaster for folk who have to sell,” says Irvine, who has been tracking the market for five years. “My preference is a villa in a prime location with sea views, but basically I’ll go for the best deal.”

The market may be turning, but that doesn’t mean all properties are for sale at rock-bottom prices. “Many vendors haven’t yet come to terms with reality, and some asking prices are ludicrous,” Irvine adds. “I’m a cash buyer – a rare beast today – and, if prices don’t meet my expectations, then I just won’t buy. If I come back from this next trip empty-handed, I won’t be disappointed – I’m not in a hurry.”

So, how bad is it, and will there be a crash? The outlook for the Spanish economy is darkening: unemployment is rising, inflation has hit 4.3% and the current-account deficit is the biggest in Europe. The oversupply of new flats and villas in many “sub-prime” locations, such as Duquesa, on the Costa del Sol, and Torrevieja, on the Costa Blanca, remains a problem. A quarter of all properties built in the European Union in 2006 were in Spain, and Caixa Catalunya, a Spanish savings bank, has estimated that up to 500,000 newly built properties remain unsold.

Spain is a large and diverse country, however, which means that different areas and kinds of property will perform differently. “Much of the doom and gloom is misleading, because it comes almost exclusively from new-build property development,” says Barbara Wood, who runs the Andalusian end of The Property Finders, a search agency. But bad news in one segment tends to rub off on others, forcing serious sellers across the board to lower their asking prices.

Detailed research is the key to success, but here are some tips to help you on your way.

Information is power

You should do your homework before buying any property abroad, but it’s more important than ever when the market changes and prices begin to jump all over the place. Invest your time wisely in researching the market and you may be able to save yourself tens of thousands of pounds. “There’s no substitute for clear thinking and good research,” Irvine says. “You have to be really clued up on the market, and clued up on values, then drive a hard bargain.” To use an analogy from the stock market, you have to be a stock-picker, rather than buying the index.

What kind of property?

Newly built flats on the coast are largely responsible for the property glut, much to the distress of the many British investors who bought them off-plan in recent years. Sea views or not, many of them are in mediocre or poor locations, with little to differentiate them from one another. This leaves sellers with nothing to play with but the price – and, given the oversupply of property, they may be desperate. In short, if you don’t mind buying an iden-tikit apartment, this is where the best deals are likely to be found.

Although villas are in shorter supply, problems in the market for flats mean that asking prices are also being pushed down for villas. “Prices for attractive villas in the upmarket enclave around Javea, on the Costa Blanca, are already 20% down,” says Andrew Lupton, of Stacks Relocation Spain. “You can now get a lovely four-bedroom villa with a pool on a plot of 800 square metres for £300,000. A year and a half ago, it would have cost you £380,000.”

Significantly, planning approvals for new detached properties are falling considerably faster than for flats, according to new figures from the Spanish Ministry of Development. This suggests a shortage of villas in years to come – which will tend to underpin their prices in the future.

Where should you buy?

Some buyers are, of course, wedded to a particular area or region. But if you are more flexible, then head south for the best bargains. “There are already some ‘come and buy me’ prices to be found in Andalusia,” Wood says. “For example, a brand-new penthouse in Nerja, with four bedrooms, two bathrooms, a rooftop pool, wonderful living areas and great sea views, which was first on the market for £720,000, is now down to £510,000 – with every indication that the price can be negotiated further.”

The best deals are on the coast, where the oversupply of property is greater, but inland properties are also being dragged down. The latter market is smaller, but less volatile, which might appeal to more risk-averse investors.

Dealing with developers

Developers are having a hard time because of the downturn, which is hitting their sales hard – a fact reflected in the collapse of the share price of most developers quoted on the Spanish stock market in recent weeks. So, now’s the time to drive a hard bargain if you are buying direct. Many developers are loath to drop prices, but will offer discounts in other forms, such as mortgage “holidays” or guaranteed yields.

Choose your development carefully: many are so unattractive and overbuilt that, however good a deal you get, you may never be able to sell on your flat. Be extra-careful if you are buying off-plan. Many developers are having financial problems, and nothing is a bargain if the developer folds and runs off with your money before the project is completed. So, take your time, negotiate hard and buy only from developers with strong balance sheets and good reputations.

Distressed sellers

Distasteful as it is, there’s no better way to get a bargain than to find someone who needs to sell because of a personal calamity such as death in the family, divorce, ill health or redundancy. Distressed sellers, especially Britons who need to return home with their money, can’t afford to sit out the buyers’ market, and the longer they delay, the more it costs them in mortgage payments and other expenses. Especially badly hit are those who bought off-plan when prices were rising, in the hope of selling on for a profit. One British owner in financial difficulties recently had to sell his £900,000 villa on the Costa del Sol for £415,000, leaving him £450,000 out of pocket once the mortgage had been cleared. “One person’s pain is another’s gain,” Lupton observes.

Keep it legal

This being Spain, it is essential to do thorough legal searches before buying, no matter how good the price. The regional government of Andalusia, for example, has just demolished the home of an elderly British couple in Almeria, claiming it was illegal. No property, however cheap, is a bargain if it’s going to be knocked down.

That said, buying illegal properties at a discount could be a rational strategy for an investor with a large appetite for risk. Some of the properties might be demolished, but others might pay off handsomely. You would, however, need deep pockets and nerves of steel.

The Property Finders, 020 7518 0335, www.thepropertyfinders.com; Stacks Relocation Spain, 0871 871 4687, www.stacksrelocationspain.com

Hasta la vista –three bargain buys

Was £240,000, now £145,000: A three-bed, two-bathroom, 80 square metre ground-floor flat near the beach at Mar de Cristal, in Murcia. Bluemed Spanish Properties, 00 34 968 137 245, www.bluemed.net

Was £900,000, now £620,000: A fourbed, three-bathroom, 235 square metre, south-facing villa on 0.25 acres in a development near Marbella. Direct Auctions, 00 34 952 859 913, www.direct-auctions.com

Was £1.4m, now £830,000: A six-bed, 310 square metre villa on 0.65 acres in Javea, Costa Blanca, with front-line sea views and two pools.Vicens Ash Properties, 00 34 96 646 1643, www.vicensash.com

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