* Property investors say Sareb agency is unrealistic on pricing
* Some say runs risk of scaring away serious players
* Agency says has time to deliver returns
* Banks unwilling to provide further capital if needed
By Tom Bill and Sarah White
LONDON/MADRID, May 30 (Reuters) - Several major property investors say Spain's bad bank Sareb is demanding overinflated prices for the best of its 51 billion euros of unwanted property and loans, delaying sales that could ease some of the pressure on public finances.
Like Ireland's bad bank before it, the body created to relieve Spain's lenders of the worst of the toxic assets generated by its property crash has made a slow start to its efforts to generate some returns.
Bankers in Spain warn that an ongoing audit of the real value of the assets it is holding may reveal many are worth next to nothing and force it to turn to the government for more capital to swallow the resulting losses on book value.
But property investors say that even as Spain slips deeper into recession, Sareb has shown little sign of flinching in talks this year, demanding prices that are close to those for prime assets in major markets like Paris and London.
"I'm not wasting any more time with Sareb," said one investor at a global institution managing more than five billion euros of European property, speaking on condition of anonymity.
"There are good deals to be had in Spain, but not through Sareb."
Founded last year, the agency was given two years before it has to generate profit from the assets it took onboard when Spain's banks cleared out their books, backed up by 4.8 billion in funds from the state and major banks.
Spain's economy minister said that Sareb aimed to sell 1.5 billion euros of assets this year but investors say the pricing and trickle of sales to date makes that look unlikely, citing an apparent paralysis based on a fear of selling too cheaply.
Several other industry sources said it was seeking yields - the annual return from renting out commercial real estate as a percentage of how much it cost to buy - of 6 percent compared to rates of 4 or 5 percent for the best office properties in major markets like London and Paris.
They said the prices it demands for those assets would have to reflect yields of at least 8-9 percent to draw in potential buyers and reflect the risks of investing in Spain.
A spokesman for Sareb, co-owned by Spanish banks and the government, said it was satisfied with its progress to date, adding it had time to meet its target of a 13-14 percent annual return over 15 years and aimed to sell at the best possible prices.
Spain's bad bank setup follows the model of similar arrangements in other struggling European economies, allowing banks to get rid of many of the toxic assets generated by the financial collapse of 2008 and its aftermath.
Typically, they aim to cordon off at the expense of the state distressed assets that otherwise could drive more lenders under. The hope is that the debts will gradually be paid off by a combination of asset sales, inflation and the recovery of markets for the unwanted assets.
But while Ireland, Europe's other major property collapse after 2008, has managed to bounce back to economic growth swiftly, Spain's economy is still deep in recession and high unemployment has raised broader questions of whether its economic model works, adding to the long-term risk of investing.
Ireland's bad bank, NAMA, also had a healthy pool of assets in stronger markets in London and elsewhere that could be sold off relatively quickly after the worst of the post-2008 crisis eased. Investors say Sareb has fewer such assets.
"Sareb is not NAMA part two," said a senior source at a global property consultant. "It's not the bag of sweets investors hoped for."
Sareb has not disclosed which properties it holds but the list includes many second-tier offices and shopping centres across Spain, several property sources said. One of the more sought-after deals is a stake in the large Parque Corredor mall east of Madrid, two sources said.
Once those more attractive assets are sold it will be reliant, as NAMA is too, on a broader recovery in the economy and property markets to revive prices of less attractive plots.
It is preparing to auction its first portfolio including unfinished blocks of flats on Spain's eastern and southern coast for about 200 million euros, said two sources familiar with the sale, known as 'Project Bull'. Bids are due by mid-July.
But this follows a failure by Sareb to strike a deal with U.S. distressed fund Lone Star earlier this year for the same portfolio, two sources close to the deal said, and other investors said they had struggled to get deals done.
"We've put in offers that would have made a profit for the taxpayer and nothing happened," said one property advisor acting for global investors. "Sareb is fast gaining a reputation as a vehicle that can't deliver."