By Andrew Hay

MADRID ( R euters) - On a street corner in Tetuan, a working-class area of Madrid, hand-written “for sale” notices have faded to yellow as owners hold out months for their asking prices, refusing to believe that a nine-year property boom is over.

Having gained 190 pe r c ent since 1998, one of the world’s hottest property markets has finally succumbed to high lending rates, oversupply of a million homes in the past four years and prices that are up to 30 percent overvalued.

Real estate agent Angel Velazquez says some homeowners in Tetuan have cut prices by up to 25 percent to try to attract a buyer, while small property agencies have gone under after months without a sale.

“It’s taking time for people to realize the boom is over, they think they can still make lots of money, but it’s finished,” Velazquez said.

The government’s national figures have not registered a decline, reporting a 5.8 percent increase in prices for the second quarter over a year earlier.

And Prime Minister Jose Luis Rodriguez Zapatero, who faces an election next year, assures Spaniards and foreign holiday home owners the property market will have a soft landing, unlike previous meltdowns in the 1990s and 1980s.

Spain’s economy is robust, with unemployment at a 29-year low, supported by strong euro zone conditions.

But tens of thousands of construction workers could lose jobs as residential construction slows. That could cut Spanish growth by a percentage point in 2008 and end Spain’s long outperformance of euro zone peers, economists warn.

“If we’re lucky, we’re entering a period of house price stagnation around the level of inflation, which will include price falls,” said Fernando Encinar, a director of Idealista.com, Spain’s biggest online property advertising site.

Price declines could be sharper, and drag on longer, if firms continue to flood the market with new homes. Stock market investors remain jittery as the global credit crunch puts extra pressure on over-leveraged Spanish real estate firms.

“There is potential for panic,” says economist Susanna Garcia at Deutsche Bank in London.

SPANISH SPRAWL

Nearly a third of all concrete and asphalt covering Spain was laid in the last 14 years, as the former European economic backwater built homes and infrastructure and took per capita income to a level now close to the EU average.

Ranks of identical ochre and beige brick apartment blocks have marched out over plains and farmland around cities like Madrid and Valencia.

A symbol of the boom is Sanchinarro, a higher-end neighborhood on the sprawling northern edge of the capital.