The Unassuming Economist

From the IMF’s latest report on Germany:

“Vulnerabilities in real estate markets call for close monitoring and addressing remaining data gaps. The COVID-19 pandemic has elevated risks related to the real estate market, which was marked by significant price increases in the years prior to the crisis. Commercial Real Estate (CRE) remains susceptible to lower demand following behavioral changes engendered by the pandemic, increasing vulnerabilities of German banks which are among Europe’s most exposed to CRE. Residential real estate prices have been rising rapidly over the past decade, especially in major cities (…). However, there is little evidence that this trend has been either exacerbated or reversed by the pandemic. Although household indebtedness remains relatively low, the continued build-up of vulnerabilities in real estate lending warrants close monitoring. The lack of granular data—which hinders a full assessment of potential risks to financial stability—should be quickly remedied. The authorities took an important step in this direction recently, providing a legal framework for the Bundesbank for more comprehensive data collection on residential real estate loans. An assessment of the adequacy of supervisory data should be conducted following initial data collection, and any remaining gaps promptly closed. Germany should also expand its macroprudential toolkit for real estate lending, including income-based instruments such as debt-to-income or debt-service-to-income caps, while recognizing that the CRE sector is characterized by considerable heterogeneity in financing structures.”