Spanish Property Is Overpriced: Bank of Spain

According to the Bank of Spain, Spanish property is overpriced currently, which contrasts sharply with the record number of sales registered in 2021.

(27.12.) According to a senior Bank of Spain official, Spanish property is overpriced 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.

Following the implementation of lockdown measures in March 2020 to combat the COVID-19 pandemic, Spanish property prices have begun to recover, and house sales have also increased.

Earlier in December 2021, the national statistics institute INE announced that its property price index increased 4.2 percent in the third quarter, the largest increase since the same quarter of 2019, following a 3.3 percent increase 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, the central bank’s head of financial stability, said at a news conference.

The 2008 property bubble laid off millions of people, necessitating a 41 billion euro bailout of the country’s banks in 2012, and pushed Spain dangerously close to requiring a sovereign bailout.

Estrada stated that, for the time being, no mitigating measures were required, though the bank “remains very vigilant,” and that other European countries were in a different situation.

The Bundesbank warned in November that Germany’s housing market could be 30 percent overvalued.

Estrada was speaking after the Bank of Spain approved the expansion of its macroprudential toolkit on Thursday.

It established a sectoral component of the countercyclical capital buffer, concentration limits in specific sectors, and loan origination and other transaction limits and conditions.

The buffers seek to mitigate or prevent cyclical risks caused by excessive growth in aggregate credit by requiring lenders to build insurance reserves during periods of strong growth that will be available in the event of a downturn.

Spanish property is overpriced? Not in Valencia, though!

The Bank of Spain’s statement contrasts sharply to the INE’s sales figures, which show that 2021 will be one of the best years for property transactions since 2008. It also contradicts data from the web portal Idealista, which showed a record decrease in Spain’s property stock.

This news should not concern investors in Valencia, where a variety of factors are at work, including an influx of foreigners, a lack of available building land for development, and the impressive entry of large investment funds into the property market. All of this, combined with local governments’ inability to issue building permits on time, creates an ideal environment for further price increases.

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