The ECB warns of the vulnerability of the real estate market in the eurozone

The logo of the European Central Bank (ECB) in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

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FRANKFURT, Feb 16 (Reuters) – The housing market is a “key vulnerability” for eurozone banks as the rise of remote working since the pandemic slumps demand for office space and households take on more debt to buy expensive homes, the European Central Bank said. Wednesday.

Central bankers have sounded the alarm over the booming eurozone housing market, which has helped create a decade of ultra-low interest rates and light prudential regulation.

In the latest warning, ECB supervisors said commercial and residential real estate had become a source of concern and that they planned to take a closer look at banks’ exposure to it.

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“ECB Banking Supervision has identified banks’ exposures to the commercial and residential real estate sectors as a key vulnerability,” the ECB said in its newsletter.

He announced plans for a “targeted review” of a sample of banks with significant exposure to commercial and residential real estate.

“The commercial real estate (CRE) sector is considered vulnerable to the impact of the pandemic, while the medium-term risks of price corrections continue to grow in the residential real estate (RRE) sector. , with signs of potential overvaluation of house prices and high household indebtedness,” the ECB said.

Banks’ exposures to commercial real estate account for around 8% of supervised banks’ loans and more than 20% of their corporate loans, the ECB said.

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Reporting By Francesco Canepa; Editing by Christina Fincher

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Penny D. Jackson