World Real Estate

BOE Notes Looser Loan Standards in Commercial Real Estate

Real estate property market news:

Bank of England officials, who have already said that they are keeping a watchful eye on Britain’s housing market for any signs of a bubble, are widening their gaze to include commercial real estate.

The minutes of the March meeting of the central bank’s Financial Policy Committee, published Tuesday, record that officials observed “signs of some relaxation” in underwriting standards for commercial property loans as the market has picked up. The panel, which tackles threats to the stability of the financial system, noted that commercial real estate transactions totaled almost 55 billion pounds ($91.65 billion) in 2013, just shy of a precrisis peak.

The panel also noted that most of the deals were financed without buyers taking on large debts: one estimate suggested that 75% of transactions in 2013 were financed solely by equity, the FPC said. In 2007, only a quarter of purchases were equity financed.

Moreover, any relaxation in lending standards follows several years during which commercial real estate lending had dried up or was available only on the most onerous terms.

The minutes suggest officials are satisfied the commercial property sector doesn’t yet pose any sort of risk to the financial system. But they also suggest that the FPC will be keeping a close eye on the market for any signs it is at risk of overheating.

Separately, the minutes also record officials’ concern at the rise of “geopolitical risk” to the financial system particularly surrounding tensions between Ukraine and Russia over Russia’s annexation of the Crimean peninsula.

“Although direct exposures of U.K. banks to these countries were relatively limited, less direct threats to stability could emerge if tensions were to escalate further and trigger a shift in global risk appetite.”
Source: Dow Jones

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