Financial stability warning from the European Central Bank
ECB experts drew attention to the dangers to the financial stability of the commercial real estate market in the Macroprudential bulletin entitled “The growing role of mutual funds in euro area real estate markets: risks and factors” published on the website from the bank.
In the bulletin, which points out that commercial real estate funds currently own 40 percent of the commercial real estate in the Euro Zone, it is warned that the increasing problems of refinancing in the real estate sector with the increase in interest rates may cause exits in this scope. in Europe.
THE IMPLEMENTATION HAS CREATED
Noting that the net asset value of real estate mutual funds has more than tripled in the last 10 years, reaching more than 1 trillion euros ($1.1 trillion), increasing their interdependence with real estate markets, the funds are an asset because the investors often have opportunities to withdraw money and assets are highly illiquid, an imbalance has been reported.
Emphasizing that this imbalance may make funds vulnerable to distressed sales at low prices due to liquidity pressure, the bulletin warned that this could further increase pressure on the housing market.
According to the ECB, instability in this area may have a “systemic effect” on commercial real estate, which in turn could affect “the stability of the financial system in general” and the real economy.
“RETURN COSTS…”
ECB experts cited in the bulletin the US Blackstone Real Estate Income Trust (Breit) fund, which had to limit its redemptions because too many investors joined too early, helping the funds better manage surges on the demand for liquidity and internalize redemption costs that may arise during market stress. He stated that rules should be developed to help.
Notably, the ECB’s warning came after the European Systemic Risk Board (ESRB) warned in January that the European Union and member states should improve their vigilance against systemic threats emanating from the commercial real estate market. (AA)