House prices in Spain fell by 11.2% in July, the biggest monthly fall since March last year. Overall prices have fallen by 31% since the financial crisis hit in 2008. Spain has an estimated 2 million unsold homes.

Prices have slumped across the board and even in the big cities they are down 11.8% and 11% on the Mediterranean coast. The biggest falls have been in the Balearics and Canary Islands where prices declined in July by 14%. The government's decision to raise VAT from 4% to 10% on house purchases as of next year is expected to depress the market still further.

Estate agents are reluctant to reveal the sort of discounts they are offering but it is a buyer's market. The huge surplus on the costa has rendered many developments effectively worthless and flats near the sea that might have cost upwards of €300,000 (£235,000) can be had for half that.

The average price per square metre in July was €1,606, 8.3% down on a year ago. For a typical two-bedroom flat in town this amounts to an average drop from €113,500 to €105,000 in a year. Flats in big cities that may have cost €400,000 in 2008 can be had for €275,000 now.

The most expensive areas are the Basque country, at over €3,000 per square metre, and Madrid (€2,500) – the cheapest are Castilla-LaMancha (€1,221) and Extremadura (€1,425). As is usually the case, prices are holding up better in the big cities – where there is still some hope of finding work – than in small towns and rural areas.

A combination of falling prices, low interest rates, a weak euro and banks dumping unsold property at a discount means Spain continues to be an attractive option for Britons wanting a holiday or retirement home by the sea.

• This article was amended on 15 August 2012. The original referred to the Canary Isles rather than Canary Islands. This has been corrected.