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The Bank of Spain has reported that there are an estimated 700,000 to 1.1 million unsold properties on the market, which will hinder any recovery of the housing market as prices are expected to keep falling in 2011.
"We will see a process of gradual absorption of accumulated excess supply, which will be slow and mean that housing investment will not contribute to the growth of activity in the near future," the banking regulator said in its monthly economic bulletin published earlier today.
The construction of new peoperties increased significantly during Spain's property boom - from 750,000 units in 2007, falling to 137,000 in between September 2009-2010, a figure that is not expected to increase in the near future, the Bank of Spain said.
Home prices are likely to keep falling due to tax changes, the regulator said. A tax incentive for house purchases expires at the end of 2010.
"Some fiscal factors have been able to cushion the price adjustment in 2010, but in 2011 it looks probable that prices will keep moderating," the Bank of Spain said.
Property prices in Spain have decreased by about 13 % from the market's peak in the first quarter of 2008, according to government statistics. A survey by property website Fotocasa.es and IESE business school says the decline has been more than 22 %, while R.R. de Acuna & Asociados, a Madrid- based property adviser, predicts prices could decrease by a further 20 % over the next five years.