[author: Charles Sheldon]

On November 28, 2016, the European Systemic Risk Board (“ESRB“) published a report on vulnerabilities in the EU residential real estate sector, together with eight country-specific warnings and a Q&As document.

The warnings on medium-term vulnerabilities in the residential real estate sector are addressed to the relevant ministers in eight Member States: Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden and the UK. The ESRB decided to issue the warnings following a forward-looking EU-wide assessment of vulnerabilities relating to residential real estate. These vulnerabilities may be a source of systemic risk to financial stability in the medium term. As a result, on September 22, 2016, the ESRB adopted warnings addressed to the eight member states and decided to make the warnings public. The member states were given a period of time to respond.

For the remaining member states, the ESRB has either not identified a build-up of any material vulnerabilities relating to the residential real estate sector, or such vulnerabilities have been identified but the current policy stance is sufficient to address them. The ESRB advises that the latter is the case for Estonia and Slovakia. It also advises that, for the UK, it has not assessed whether policies in place are appropriate and sufficient given the uncertain impact of the vote to leave the EU on the medium-term outlook for the UK housing market.

The ESRB has also published a recommendation on closing real estate data gaps (Recommendation ESRB/2016/14), which it adopted on October 31, 2016. The recommendation, which covers both the residential and commercial real estate sectors, aims to establish a more harmonized framework for monitoring developments in EU real estate markets. It provides a common set of indicators that national authorities are recommended to monitor in assessing risks originating from the real estate sector, along with working definitions of these indicators. The deadline for implementing the recommendation is the end of 2020. ESMA will monitor compliance with the recommendation via an “act of explain” mechanism. As follow-up work to the recommendation, the ESRB believes that a regular data collection on these indicators should take place at the EU level, and considers that the European Central Bank (ECB) is well placed to play a leading role in this.