The risk of "a more abrupt slowdown" will occupy the minds of investors in both the Spanish and Irish property markets, it was claimed yesterday, as the steep drops in the value of Spanish real estate companies on Tuesday continued to have knock-on effects on the Irish Stock Exchange.

Drawing parallels between the two markets, Goodbody Stockbrokers economist Dermot O'Leary said housing activity in both Spain and Ireland was "obviously unsustainable".

At 21 houses for every 1,000 people, the number of houses built in Ireland last year is higher per head of population than it is in Spain, which built 16 houses per thousand of the population last year, Mr O'Leary noted.

The European average for annual housing output is less than six per 1,000.

"Undoubtedly, like Spain, the risk of a more abrupt slowdown in the property market alongside a higher than expected increase in interest rates will occupy the minds of investors into the Irish market in 2007," Mr O'Leary commented.

However, he added that other areas of the Irish economy remained robust and that there was no reason why a soft landing could not be achieved.

Davy economist Rossa White said there were important structural differences between Ireland and Spain, with Ireland enjoying the benefit of healthier demographics, higher productivity growth and a lower current account deficit.

Spain's economy minister Pedro Solbes denied yesterday that the Spanish property market, which is now growing at its slowest rate in eight years, was a cause for worry.

Asked in the upper house of the Spanish parliament about the property market, Mr Solbes sought to calm fears which sent Spanish shares tumbling on Tuesday.

"Are we in a worrying situation, in general terms? My thesis is that we are not, because family income is consolidating, there are good prospects for employment," he said.

Acknowledging that non-performing loans had risen slightly from a very low base as interest rates climb, Mr Solbes said family balance sheets remain strong and that there was an easing in lending levels to a property market that is widely seen as overheated, with an oversupply of properties.

The Spanish stock market rebounded yesterday, but the Iseq index of Irish shares did not enjoy good fortunes, and was the only stock exchange in Europe to finish down on the day, falling 0.32 per cent.

The spillover from Tuesday's negative sentiment from Spain eased slightly, however Irish Life & Permanent, which has the most exposure to the property market, suffered a 3.7 per cent drop in its share price, falling 75 cent to €19.75.

Building group McInerney, which has some exposure to holiday home development in Spain and earned €4.2 million in operating profit there last year, saw its share price fall 1 per cent to €14.95. - ( Additional reporting: Reuters)