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Commercial Real Estate: Europe: Difference between revisions
→European Systemic Risks Board Report[8]
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* Banks have not sufficiently performed sensitivity analyses on CRE exposures, especially to measure the potential impact of an increase in interest rates. As a result of these weaknesses, the affordability of some borrowers may not be as robust as banks had originally assumed. | * Banks have not sufficiently performed sensitivity analyses on CRE exposures, especially to measure the potential impact of an increase in interest rates. As a result of these weaknesses, the affordability of some borrowers may not be as robust as banks had originally assumed. | ||
* 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 most countries default rates for CRE loans are higher than those for the stock of loans in other segments of the economy. Germany share of CRE NPLs is 30%, with a 10% exposure of total loans. | * In most countries default rates for CRE loans are higher than those for the stock of loans in other segments of the economy. Germany share of CRE NPLs is 30%, with a 10% exposure of total loans. EU at 15% share. | ||
* 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. | * 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. | ||
* 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. | ||