Spain is starting a race to sell $1.3 billion of property by the end of 2011.

In a drastic move to tackle borrowing costs, Spain is sprinting to find investors for a large portfolio of government-owned real estate, the first of its kind on this scale, which includes 37 properties in Catalonia and 76 properties in Andalusia.

The effort to cut the country’s deficit is led by two of Spain’s most indebted regions, which have economies equal to the size of Portugal and Ireland. Together, they are looking to clear a combined total of 52 billion Euros of debt by the end of the year.

It’s a daunting task, but offers have already been received for Andalusia’s share of the properties, as investors are attracted by the reliable income from government tenants:

“We have 10 non-binding offers -- mainly from Anglo-Saxon investors -- for the entire portfolio that exceed our target,” Manuel Sanchez Galey, General director of finances in Andalusia’s treasury department, told Business Week. “I am completely confident we will close the deal on time.”

The total debt for all 17 regions is now 133.2 billion Euros, giving Spain the third-highest deficit in Europe, behind Greece and Ireland. The country is hoping to avoid the need for bailouts, even as the residential market saw home sales drop by 3 per cent year on year during the second quarter of 2011, according to the Spanish Land Registry – the lowest quarterly figure on record.

But there are positive signs in some regions. House prices are staying low but in Murcia, transactions are rising. The area, recommended by last month as one of the best Spanish places to invest, welcomed overseas buyers from Norway, Sweden and France as estate agent Mercers recorded its “best summer sales period for five years”.

Tourism has hit new heights this year, too, with August’s all-time record of 7.6 million visitors. Spain may have the third-highest debt in Europe, but it is also the fourth most-visited country in the world, providing opportunities for buy-to-let investors as well as adding to its appeal as a holiday home destination.

Catalonia and Andalusia will be hoping to see a similar surge in interest for their property portfolio, as their frantic selling race begins. “We have to get this right,” Sanchez Galey added. “People will be watching closely.”

As two of the worst-hit regions in Spain sprint to find a buyer, Murcia’s property market is picking up pace. On a national scale, Spain’s marathon is far from over, but on a regional level, it’s sometimes a different race altogether.