The news that one of the Costa del Sol's biggest estate agents has filed for voluntary insolvency has deepened the gloom over southern Spain's property market. Viva Estates was one of the area's biggest success stories. It was set up ten years ago by an Englishman, Chris McCarthy, using the cricketer Ian Botham to raise its profile and within a few years operated from 15 offices. In the past 12 months, all but one of those offices has closed and more than 100 staff have lost their jobs.

“At one time we were selling 200 properties a month,” McCarthy says. “Now we sell around 25. A 90 per cent fall in business is hard for any company to take but we've taken the responsible route. Our advisers said, ‘the option is there to help you so use it', and we have. We have one large office, about 60 staff and we're confident we can keep trading. We have been hit from all sides by economic factors but it's the exchange rate against sterling that has really floored us.”

Inflation is up, prices and sales to foreigners are falling, there is an oversupply of new properties, a credit squeeze and that punishing sterling-to-euro exchange rate. The story elsewhere is similar. Andalucian Dream Homes (ADH), which coincidentally now uses Botham in sales promotions, has also felt the pinch. The company has closed offices, shut down its promotional magazine, changed working hours and put staff on shorter contracts.

But, says its director David Honeyman, ADH is still in business. “The investors, who were buying two and three properties, have gone and what's left are the retirement couples and lifestyle buyers. But buyers are still coming. In fact there's been an increase in inquiries and genuine buyers viewing properties in recent weeks.”

The gloom is not universal. A recent study by the Madrid-based Viventta Real Estate Group reported that the slump is having no effect on homes priced above €800,000 (£624,000), particularly those in exclusive Costa del Sol areas such as Sotogrande and Marbella's Golden Mile, where homes are starting to be in short supply.

Barbara Wood, of The Property Finders, confirms this top-end activity: “Every client I've had this year has had little need for finance. They have been watching the market, and they are deciding it's time to start looking in earnest. They know that they won't get vast sums knocked off the price, but they won't have to compromise on requirements. In the higher price brackets that's crucial.”

Her assessment of the other end of the market is blunt: “Until recently, valuers have been giving favourable valuations, allowing buyers to get 100percent mortgages. It's led to people with no money buying junk which is now losing money, and on which they can't afford the mortgages. It's impossible to quantify how many Britons have bought off-plan over the past two or three years in the expectation of ‘flipping' [selling] the properties before completion. But these private buyers' final payments have become due, and mortgages they hoped never to have to pay have kicked in. Many are prepared to sell, even at a loss, but they are being undercut by developers finally reducing their prices.”

Martin Dell, of the property portal Kyero, says that with exchange rates leaving prices on the Costa del Sol 20 per cent higher against the pound than a year ago, it will “continue to be messy for a couple of years”.

Fact file

Property sales in Spain fell by 27 per cent in January.

Spanish developers have admitted that off-plan prices will fall by up to 8 per cent this year, with further falls forecast.

Developers in the Costa del Sol say that sales fell by about 50 per cent last year.

Nearly 50 per cent of Spain's 80,000 firms of estate agents closed in 2007.

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