The Unassuming Economist

From the IMF’s latest report on Estonia:

“Housing market and macroprudential policy. Although the housing market has weathered the crisis well, it is critical as a preventive policy tool that the standard macroprudential instruments (debt to income, loan-to-value, and loan maturity cap requirements and the 15 percent risk weight for mortgage loans), be maintained to help keep the housing prices aligned with fundamentals. The authorities should be ready to re-calibrate tools in light of the risks of housing market overheating that are posed by the pension system withdrawals. As the economy recovers, the systemic risk and countercyclical capital buffers (both currently at zero) could be re-assessed and macroprudential tools may need to be used more actively if significant divergences with the euro-area’s cyclical conditions emerge.”

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.”

From the IMF’s latest report on Singapore:

“The housing market has been stable during the pandemic, while the commercial real estate market has been more adversely impacted. Private house prices and transactions have held up; following a 2.2 percent increase in 2020, house prices further increased by 6.6 percent in 2021Q1 (year-on-year), while household mortgage loan NPLs remained stable at ½ percent of the bank’s mortgage book in 2020 (…). The economic downturn, however, has reduced demand for commercial space, and by end-2021Q1 prices for office and retail space had declined by 9.5 percent and 4.6 percent respectively. Vacancy rates for retail space edged up from 8.0 percent in 2020Q1 to 8.5 percent in 2021Q1, and for office space from 11.0 percent to 11.9 percent during the same period, although these have come down from peak levels in 2020.”

From the IMF’s latest report on Saudi Arabia:

“Mortgage lending has continued to grow rapidly as government programs have supported housing demand and supply (…). Retail mortgage lending has more than doubled over the past two years to around 18 percent of total bank credit. SAMA and staff agreed that risks to banks still appear limited given debt service limits on borrowers, the low average loan-to-value ratio, and the fact that most repayments are made by salary assignment from borrowers employed in the public sector. Nevertheless, risks need to be carefully monitored and SAMA stressed that they carefully monitor banks and have surveillance systems in place to identify any build-up of vulnerabilities to inform macroprudential policy.”

From the IMF’s latest report on Switzerland:

“Residential property prices have risen during the crisis, increasing affordability and imbalance concerns; commercial real estate faces risks from negative COVID-19 effects. Rising house prices have increased imbalances, especially among rentals, where vacancies are higher. A deterioration of affordability may take place when income support is withdrawn and should be monitored. Commercial real estate, especially outside core central business districts, also faces risks from negative pandemic effects and changes in occupancy, rents, and valuations. Voluntary self-regulation by financial institutions may face limits in terms of timeliness and stringency, and proactive measures (e.g., LTV or DTI restrictions) may be needed. The sectoral CCyB deactivation was appropriate, but should remain temporary, with buffers reset for potential real estate developments when conditions allow. Review of restrictions on housing supply in core urban areas and possible tax distortions may help identify measures to address imbalances.”

(…)

The authorities also see risks from real estate and search-for-yield behavior and are monitoring these carefully. They shared staff’s overall assessment and agreed that lagged effects of the COVID-19 crisis, real estate developments, and “lower-for-longer” pressures may have potentially important implications for financial stability. They will continue to monitor developments closely, as well as fintech and crypto activities. They highlighted progress made in implementing FSAP advice, especially on resources for FINMA, strengthening data collection and analysis, increasing risk-based on-site inspections, and improving recovery and resolution planning. They noted that the traditional approach of bank self-regulation in Switzerland has advantages—especially ownership—and stressed that self-regulatory measures may become binding and are augmented when needed. SNB and FINMA pointed to the effectiveness of new, stronger self-regulation on LTV ratios and faster amortization of mortgage loans for investment purposes from January 2020. Recent large market losses and risk controls are being closely examined. Smaller regional and cantonal banks have strong capital buffers and are prepared for further competitive pressures, including digitization. A solution is being sought for PostFinance.”