The Bank of Spain has warned investors in the real estate market that the risk of default in the sector has increased.

This Monday, the Bank of Spain issued a statement warning of an increase in the risk of loan default by non-financial companies, largely driven by the construction and real estate sectors, as well as other services.

‘There has been a slight increase in the probability of loan defaults in recent quarters,’ the bank said in its biannual report on the financial situation of households and businesses. The report states that the probability of defaulting on bank debt has risen by 39 basis points since the third quarter of 2023, increasing from 2.14% to 2.5%. However, this figure remains 25 basis points below the 2022 average.

Of these 39 basis points, 31 rose in the fourth quarter of last year, while the remaining eight points rose in the first half of 2025. This trend was observed across companies of all sizes.

Nevertheless, the deterioration in credit quality was somewhat more pronounced among large companies, with a 51-basis-point increase in the probability of default from the third quarter of 2024 to reach 2.03%. This figure is approximately 50 basis points below the average for non-financial companies overall, according to Europa Press.

What has happened?

The recent increase in the probability of corporate default has mainly been driven by growth in the construction and real estate sectors, as well as other services. In fact, the average risk of default in these sectors has increased by 44 and 96 basis points respectively since the third quarter of 2024.

Conversely, credit risk has risen slightly in the trade and hospitality sectors, reaching nine and twelve basis points above the third-quarter 2024 probability of default in the first quarter of 2025.

Nevertheless, the Bank of Spain has warned that the data ‘do not indicate a significant increase in tail risk, as the proportion of credit classified in the highest risk category has remained at levels similar to those in 2022’.

Regarding the increase in risk in the construction and real estate sectors, the agency explained that the deterioration is due to ‘an increase in the risk associated with the credit balance, assuming a constant debt structure and borrower composition’.

Original Story: El Economista
Edition and transalation: Prime Yield

Photo: Jorge Fernández Salas at Unsplash