"I see very few short-term solutions in the property business," Mariano de Miguel told a business conference organized in Madrid by savings bank Caja Madrid.

"The next two years are going to be very hard. We need to win time and to put on our hard hats because hard times are on their way," said De Miguel - the first high-profile property executive to forecasts such a steep fall in Spanish house prices.

De Miguel's analysis of the state of the Spanish property business contrasted sharply with comments from other executives in the sector and Housing Minister Beatriz Corredor who have played down the extent to which prices will fall.

According to the Housing Ministry, Spanish property prices have yet to fall, rising 3.8 percent in the first quarter.

De Miguel forecast that within two or three years house prices would be "between 20 and 30 percent cheaper" in real terms.

Santiago Aguirre, chairman of property consultancy Aguirre Newman, speaking at the same conference, predicted a fall of between 10 to 15 percent in house prices in the short term.

Aguirre said Spain had overproduction of up to 1.5 million homes and there had been a "spectacular" fall in sales so far this year, which he assessed at 85 percent.

A Reuters poll in May forecast house prices would drop 2.2 percent in 2008 and 4.5 percent in 2009.

Spanish property firms have said diversifying into the rental business and away from residential construction can shield them from the slowdown in demand for housing.

De Miguel said the rental business would also be hit.

"Assets are going to fall and a situation of empty properties is going to occur," he said.

Spanish construction companies are being hit simultaneously by an economic slowdown at home, the global credit crunch and rising interest rates.

Colonial - which specialises in renting commercial properties and has a market capitalization of around 750 million euros - is trying to sell assets to reduce 9 billion euros of debt which it used to finance expansion in the latter years of Spain's decade-long housing boom.

Investor sentiment turned against Spanish real estate firms in early 2007, triggering a fall in the company's shares. Colonial is now controlled by a number of banks led by Popular (POP.MC: Quote, Profile, Research, Stock Buzz) and savings bank La Caixa which together own 24 percent of the company's equity after swapping debt for the shares of former chairman Luis Portillo.

He said he doubted whether banks had the necessary time to manage the land which Colonial had.

Aguirre Newman believes current market conditions are creating opportunities for cheap property purchases as banks can reclaim properties from creditors.

"Opportunistic funds" are also springing up to take advantage of bargain property assets, said Aguirre.

Source: Reuters