Spain’s property sector is slightly overvalued following recent price increases but remains far from levels seen before a real estate bubble burst 15 years ago, plunging the banking system into crisis, a senior Bank of Spain official said on Thursday.
After being hit by lockdown measures introduced in March 2020 to combat the COVID-19 pandemic, Spanish property prices have started to recover and house sales have also soared.
Earlier this month, national statistics institute INE said its property price index rose 4.2% in the third quarter, the biggest increase since the same quarter of 2019, following a 3.3% rise in Q2.
“At the moment what we have is a slight overvaluation, it is small, and it is certainly far from the levels we had before the global financial crisis,” Angel Estrada, head of financial stability at the central bank, told a news briefing.
The 2008 property bust put millions out of work, forced a 41 billion euro rescue of the country’s banks in 2012 and left Spain close to needing a sovereign bailout.
Estrada said that for now the situation did not require mitigating measures, although the bank “remains very vigilant”, and that other European countries were in a different situation.
In November, the Bundesbank warned that Germany’s property market could be overvalued by as much as 30%.
Estrada was speaking after the Bank of Spain on Thursday approved the expansion of its macroprudential toolkit.
It introduced a sectoral component of the countercyclical capital buffer, concentration limits in specific sectors, and limits and conditions on loan origination and other transactions.
The buffers seek to mitigate or prevent cyclical risks caused by excessive growth in aggregate credit by requiring lenders to build insurance reserves during times of strong growth which would then be available in the case of a downturn. (Reporting by Jesús Aguado, editing by Andrei Khalip and Catherine Evans)
