Diario Oficial de la Unión Europea del 1/2/2023 - Comunicaciones e Informaciones
Text version What is this?Dateas is an independent website not affiliated with any government agency. The source of the PDF documents that we publish is the official agency stated in each of them. The text versions are non official transcripts that we do to provide better tools for accessing and searching information, but may contain errors or may not be complete.
Source: Diario Oficial de la Unión Europea - Comunicaciones e Informaciones
C 39/2
EN
Official Journal of the European Union
1.2.2023
differences in importance of the respective CRE sub-sectors and segments in those countries. This ESRB
Recommendation is addressed to relevant authorities at European Union and national level in all EEA countries as they are best positioned to analyse the importance of the respective CRE sub-sectors and segments, and the related risks to financial stability, including the risk of spillovers from other countries.
3
The ESRB has been monitoring the CRE sector closely on a continuing basis and, in 2016, issued a recommendation on closing real estate data gaps 4. In addition, the ESRB has published reports in 2015 and 2018 on vulnerabilities in the EU CRE sector, 5 and has also provided concrete guidance for a consistent assessment of systemic risks that may stem both from developments in the CRE markets and from related macroprudential policies 6. In its recent report on vulnerabilities in the EEA CRE sector 7, the ESRB identified vulnerabilities in the EEA CRE sector as well as potential policy actions to address them. Additionally, in September 2022 the ESRB issued Warning ESRB/2022/7 of the European Systemic Risk Board on vulnerabilities in the Union financial system 8. Without neglecting the overriding importance of other sources of systemic risk highlighted in Warning ESRB/2022/7, the ESRB acts in accordance with its mandate by issuing a recommendation that identifies CRE-related systemic risks and specifies the remedial actions to be taken in response to those systemic risks.
4
The CRE sector is currently vulnerable to materialisation of cyclical risks in relation to heightened inflation and the pronounced deterioration in the growth outlook following the Russian invasion of Ukraine, as well as other geopolitical tensions. Generally, cycles in the CRE sector have larger amplitudes than overall economic cycles.
Decreasing property values and rental income streams may incentivise investors to sell CRE assets, adding further downward pressure on CRE asset prices and possibly resulting in negative effects on financial stability. Moreover, a tightening of financial conditions may reduce the income of CRE companies and the value of their properties. This means that the scope they have to refinance existing debt and to take new loans may be severely limited. This, in turn, may force some investors to sell properties to meet maturing debt obligations and liquidity needs, even under stressed market conditions, thereby adding further downward pressure on prices.
5
Vulnerabilities related to structural changes include the impact of climate-related economic policies and the shift towards e-commerce in the CRE market. Moreover, the COVID-19 pandemic has accelerated the demand for flexibility in leasable office space as mobile and hybrid working models have expanded. These structural changes increase demand for energy-efficient properties and logistics facilities, such as large warehouses, while they reduce the demand for retail, offices and, more generally, non-prime CRE.
6
Credit institutions are particularly exposed to the CRE sector via credit risk on CRE loans. Available data suggest that bank lending in the CRE sector occurs at high loan-to-value LTV ratios in several EEA countries. If the value of the loan collateral decreases, the LTV ratio increases. This would increase credit institutions loss-given-default ratios, potentially leading to higher provision and capital requirements, and could therefore limit the ability of credit institutions to maintain credit supply. Even where LTV ratios are low, aggregate information might mask other risky characteristics such as the prevalence of bullet repayment schemes, non-recourse structures, unhedged variable interest rates or very long maturities, which could be significant in some cases.
4 Recommendation ESRB/2016/14 of the European Systemic Risk Board of 31 October 2016 on closing real estate data gaps OJ C 31, 31.1.2017, p. 1. Recommendation ESRB/2016/14 has been amended by Recommendation ESRB/2019/3 of the European Systemic Risk Board of 21 March 2019 amending Recommendation ESRB/2016/14 on closing real estate data gaps OJ C 271, 13.8.2019, p. 1.
5 See Report on commercial real estate and financial stability in the EU, ESRB, December 2015; see Report on vulnerabilities in the EU
commercial real estate sector, ESRB, November 2018. Both reports are available on the ESRB website at www.esrb.europa.eu..
6 See Methodologies for the assessment of real estate vulnerabilities and macroprudential policies: commercial real estate, ESRB, December 2019, available on the ESRB website at www.esrb.europa.eu.
7 See Vulnerabilities in the EEA commercial real estate sector, ESRB, December 2022, available on the ESRB website at www.esrb.europa.
eu.
8 Warning ESRB/2022/7 of the European Systemic Risk Board of 22 September 2022 on vulnerabilities in the Union financial system OJ C 423, 7.11.2022, p. 1.
