The real estate market represents “key vulnerability” for euro area banks in view of the increase in telework due to reduced demand for offices due to the coronavirus pandemic, while households owe more for the purchase of expensive housingwarned the European Central Bank on Wednesday, Reuters reported.
Central bankers are worried about the booming real estate market in the euro area amid a decade of ultra-low interest rates and loose prudential regulation.
Will banks raise interest rates on mortgage loans
The ECB’s supervisory authorities warn that commercial and residential properties have become a cause for concern and plan to take a closer look at banks’ exposure to them.
“The ECB’s banking supervision has identified banks’ exposures to the commercial and residential real estate sectors as a key vulnerability,” the ECB said in its latest bulletin.
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In this regard, the ECB announced plans for a “targeted review” of a sample of banks with significant exposure to commercial and residential properties.
Fewer and fewer people can buy a home
“The commercial real estate sector is considered vulnerable to the impact of the pandemic, while the medium-term risks of price adjustments continue to increase in the residential real estate sector, with signs of potential overestimation of housing prices and increased household indebtedness“The ECB states in its report.
Banks’ exposures to commercial real estate account for about 8% of loans provided by supervised banks and more than 20% of their corporate loans, the ECB said.
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