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Commercial Real Estate: Europe: Difference between revisions
→European Systemic Risks Board Report[8]
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* There could be o significant asset value overstatement due to shortcomings in collateral valuation. | * There could be o significant asset value overstatement due to shortcomings in collateral valuation. | ||
* In a number of EEA countries the investment volume over the past four quarters equalled or comfortably surpassed 1% of GDP as of mid-2022. In other countries, the investment volume exceeded 0.5% of the GDP | * In a number of EEA countries the investment volume over the past four quarters equalled or comfortably surpassed 1% of GDP as of mid-2022. In other countries, the investment volume exceeded 0.5% of the GDP | ||
* In most countries default rates for CRE loans are higher than those for the stock of loans in other segments of the economy | * In most countries default rates for CRE loans are higher than those for the stock of loans in other segments of the economy. '''EU at 15% share of NPLs.''' | ||
* Investment funds act as buyers in the bulk of CRE transactions, with a share of around 50%. Private investors account for just over 30% of total transaction value, followed by insurers and pension funds, which account for about 10%. Banks only account for a very small share.[[File:CRE3.PNG|thumb|Distribution of current LTV ratios]] | * Investment funds act as buyers in the bulk of CRE transactions, with a share of around 50%. Private investors account for just over 30% of total transaction value, followed by insurers and pension funds, which account for about 10%. Banks only account for a very small share.[[File:CRE3.PNG|thumb|Distribution of current LTV ratios]] | ||
* Banks are then exposed to CRE markets (i) via credit risk on CRE loans and changes in values of CRE collateral and (ii) as lenders for investment funds. | * Banks are then exposed to CRE markets (i) via credit risk on CRE loans and changes in values of CRE collateral and (ii) as lenders for investment funds. | ||
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* In the banking sector, a significant share of loans have an '''LTV ratio above 80% in a number of countries''', which indicates that the sector is highly exposed to changes in CRE prices. Declining CRE prices could lead to rising LTV ratios, pushing up capital requirements and undermining the ability of banks to provide credit. ''pg.32'' | * In the banking sector, a significant share of loans have an '''LTV ratio above 80% in a number of countries''', which indicates that the sector is highly exposed to changes in CRE prices. Declining CRE prices could lead to rising LTV ratios, pushing up capital requirements and undermining the ability of banks to provide credit. ''pg.32'' | ||
* Even for loans with LTV ratios that might appear more conservative, the aggregate information might hide other, riskier characteristics, such as a bullet repayment scheme, a non-recourse structure, variable unhedged interest rates or long maturities ''pg.32''[[File:CRE5.PNG|thumb|Share of CRE investment transactions in the EU by buyer type]] | * Even for loans with LTV ratios that might appear more conservative, the aggregate information might hide other, riskier characteristics, such as a bullet repayment scheme, a non-recourse structure, variable unhedged interest rates or long maturities ''pg.32''[[File:CRE5.PNG|thumb|Share of CRE investment transactions in the EU by buyer type]] | ||
* The NPL coverage ratio for CRE loans is much lower than that for total loans to NFCs. | * The NPL coverage ratio for CRE loans is much lower than that for total loans to NFCs. | ||