MORE ON Spain's property bust, in The Economist:

The market is dropping fast. Property fairs tout discounts of as much as 60% on new-built homes, or even “buy one, get one free” offers. “All the statistics show a fall,” concedes the housing minister, Beatriz Corredor. Yet pinning down just how big a fall is tricky. Tax-shy Spaniards do not always declare the true selling prices. The government’s main index, based on valuers’ estimates, shows a 1.3% nominal fall in the third quarter. Most think the true figure is far bigger. The IESE business school talks of prices of existing homes falling by 8%.

Private sellers cannot believe that their homes are losing value, according to Fernando Encinar, communications director at idealista.com, a property website. But developers know the game is up. Some deals are being struck at 20% below advertised prices, he says, a fact few developers are keen to broadcast. They do not want people writing off deposits on half-built homes and shopping around for something cheaper.

Unlike, for example, the U.S., the real problem is not at household mortgages:

Loan-to-value ratios tend to be safely below 80%. And Spanish mortgages cannot be cancelled by dropping the house keys at the bank: security is provided by all of a borrower’s assets—and sometimes those of relatives as well. It is no surprise that most Spaniards do their utmost not to default.

The real worry for banks concerns their loans to builders and developers. More than 40% of property loans go to them, not to householders. And the numbers considered “doubtful” by the Bank of Spain rose by 60% in the second quarter, to reach 2% of all such loans. They now account for more bad loans than do household mortgages. Worse is to come. “Let no one hope for a price fall of 30-40% because, before that, I’ll be giving it all to the bank,” the head of the Spanish developers’ association, Guillermo Chicote, said recently.

That's why they're dropping like flies.

UPDATE. More: "Everywhere you wander from Malaga to Cadiz, you’ll find empty apartments and apartment projects left half-built. As Simon would say, “The only person making money in this real estate market is the guy who paints the ‘Price Reduced’ signs.” It seems like there’s an idle “overseas property specialist” on every street corner."

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