CORDOBA - "For Sale - Prices down 25 per cent!" yells the sign at the Residencia Garcilaso, a brand-new estate of tidy, yellow-walled houses on the outskirts of this southern city.

But any family who bought here with the hope of acquiring their dream home would face a lonely time. Located on the straggling edge of Cordoba, where the city yields to baked hills of olive trees, the Residencia has pristine roads and slender saplings planted amid stone paving.

But its streets are almost empty. There are few shops. A children's playground, cheerfully painted and with shiny new equipment, calls out to be filled with youngsters. Instead, it hosts to two or three kids from households marooned on a half-occupied estate.

A similar tableau can be seen in many parts of southern Spain, after a housing boom went spectacularly bust.

Developers have been left with vast tracts of unsold property, owners are struggling with the shrinking value of their homes and tens of thousands of construction workers are out of work.

When these symptoms are combined with Spain's debt spiral, some analysts see an illness so grave that the country is now a tempting target for market vultures.

Property transactions last year fell by 19 per cent, the Housing Ministry reported last week.

Last year, 387,000 new homes were finished, adding to a glut of 166,500 homes that were built in 2008 but were still in search of a buyer.

In a country of 45 million, "there might now be something like 1.1 to 1.2 million new homes on the market", says Mark Stucklin, on specialist website Spanish Property Insight.

The International Monetary Fund says Spanish property is overvalued by 15 to 20 per cent, although Stucklin says if another yardstick is used - a property's price against historic yields from rent - the overvalue is more like 40 per cent.

The bursting of the housing bubble adds a second front to Prime Minister Jose Luis Rodriguez Zapatero, already struggling with the cost of a stimulus package to nurse the economy out of recession.

Public borrowing this year is estimated at a whopping 11.4 per cent of Spain's gross domestic product, nearly four times the limit of 3.0 per cent required for the 16 economies using the single European currency.

To Spain's humiliation, analysts have added the European Union's fifth largest economy to the sick men of the eurozone.

These so-called PIIGS - Portugal, Ireland, Italy, Greece and Spain - are having to pay higher interest rates on the international bond market to cover their borrowing.

The runt of the PIIGS is Greece, a chronic spendthrift which is under marching orders from Brussels to rein in borrowing needs that this year will reach 12.7 per cent of GDP.

Hedge funds are said to be "shorting" Greek debt, meaning they are gambling Greece is on the path to insolvency.

Other eurozone nations, led by Germany, are under pressure to promise a bailout to prevent the contagion from spreading.

"If Greece is broke, can Spain be far behind?" the Economist asked last month.

"[Zapatero] has only a few months to show that he can take the radical decisions needed to prevent years of stagnation, which could unleash the social disorder he fears.

"Delaying the pain will only increase it."

Responding to such fears, Zapatero plans to cut spending by €50 billion ($97.69 billion) over three years, reform labour laws and crack down on the "black" economy.

He has also proposed raising the legal retirement age from 65 to 67, sparking the first significant protests since the Socialists took office in 2004.

But some experts fear these steps are too late and the Government's forecasts too optimistic. Ratings agency Standard & Poor's last week downgraded its credit outlook for Spain from "stable" to "negative", saying it saw GDP growth of just 0.6 per cent over each of the next three years, compared with the Government's forecast of 1.5 per cent.

Unemployment is nearly 19 per cent, the EU's highest after Latvia. Tourism, dependent on visitors from Western Europe, is in the doldrums. Caught in the vice of rising expenditure and falling receipts, Spain has to borrow more than €70 billion this year to roll over its debt.

On the plus side, Spain's economy is five times bigger than Greece's and far more diversified, and its banks were more prudent in property lending than counterparts in Britain.

So the idea that Spain could be unable to pay its debts is remote - but still close enough to cause Euro-nightmares.

A lifeline to bolster confidence in Spain would cost around €200 billion, compared with €50 billion for Greece, according to the French bank BNP Paribas.

"If Greece goes under, that's a problem for the eurozone. If Spain goes under, it's a disaster," Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, said last month.