The Vice-President of Spain and Minister of the Economy, Mr. Rodrigo Rato, has admitted that residential properties are being overvalued, however he has denied that this is creating some sort of "property bubble", he has also discarded the opinion that there will
be a sudden adjustment to property prices. "It does not appear that at this moment there is much risk, the assessment of overvaluation made by the Bank of Spain is between 8 and 20 percent. Although this may be a relevant overvaluation, a bubble that is likely to burst would need to be much above this" He stated during an interview by TVE.
The Minister further added that a sudden adjustment to the price of residential properties would be a serious matter for any economy, however he underlined that for this to happen there would need to be several other factors to come into play. There would need to be a considerable increase in unemployment, a dramatic increase in the rate of interest or the existence of a seriously bad economy at home and abroad. In reality none of these circumstance exist.
Nevertheless he did mention that mortgage interest rates are likely to be subject to an upward adjustment from the existing 2% to around 4% or 5%. "I believe that there is no reason to panic, even taking into account the increased price of domestic properties. We are not facing a "bubble" ready to burst nor is there any risk of a sudden drop in prices", he concluded.
And the Governor of the Bank of Spain says
Mr. Caruana, the Governor of the Bank of Spain, confirmed that in his opinion the adjustment to house prices will be gradual and discarded any suggestion that there will be sudden and abrupt drop in prices.
But prices will rise!
Meanwhile, according to estate agents, prices are due to go up by another 15% between now and 2004, this opinion is based on the experienced growing demand over the last few years and the fact that there is a shortage of prime building land.