Recommendation of the european systemic Risk Board of 21 March 2019 amending Recommendation ESRB/2016/14 on closing real estate data gaps (ESRB/2019/3)

(Resolutions, recommendations and opinions)

RECOMMENDATIONS

EUROPEAN SYSTEMIC RISK BOARD

RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD

of 21 March 2019

amending Recommendation ESRB/2016/14 on closing real estate data gaps

(ESRB/2019/3)

(2019/C 271/01)

THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010

on European Union macroprudential oversight of the financial system and establishing a

European Systemic Risk

Board

(

), and in particular Ar

ticle 3(2)(b), (d) and (f) and Articles 16 to 18 thereof,

Having r

egard to Decision ESRB/2011/1

of the European Systemic Risk Board of 20 January 2011 adopting the Rules

of Procedure of the European Systemic Risk Board

(

), and in particular Ar

ticles 18 to 20 thereof,

Whereas:

(1) The im

plementation of a

framework for monitoring developments in the real estate sector for financial stability

purposes requires the regular collection and distribution at Union level of comparable country data so that real

estate-related risks across Member States can be more accurately assessed and the use of macroprudential policy

instruments can be compared, with the aim of addressing real estate-related vulnerabilities.

(2) Recommendation ESRB/2016/14 of t

he European Systemic Risk Board (

) aimed t

o harmonise the definitions

and

indicators used for monitoring residential real estate (RRE) and commercial real estate (CRE) markets and

address existing gaps in the availability and comparability of data on RRE and CRE markets in the Union.

(3) Regulation (EC) No 223/2009 of t

European Parliament and of the Council (

) and Commission

Decision 2012/504/EU (

)

set out the legal framework for European statistics. In view of the experience of the

Community statistical authority, which is the Commission (Eurostat), in providing high quality data for Europe

with the aim of enabling and facilitating comparisons between countries, the Commission’s (Eurostat) contribu

tion to the framework set out in Recommendation ESRB/2016/14 is deemed by

the European Systemic Risk

Board (ESRB) to be of particular importance in order to facilitate the collection by national macroprudential

authorities of data on the indicators on the physical CRE market. The availability of such data would in turn

expedite the implementation of a risk monitoring framework by national macroprudential authorities in order to

eff

ectively monitor the CRE market, and thereby facilitate the identification of risks to financial stability arising

(

)

OJ L 331, 15.12.2010, p. 1.

(

)

OJ C 58, 24.2.2011, p. 4.

(

)

Recommendation ESRB/2016/14 of the European Systemic Risk Board of 31 October 2016 on closing real estate data gaps (OJ C 31,

31.1.2017, p. 1).

(

)

Regulation (EC) No 223/2009 of the European Parliament and of the Council of 11 March 2009 on European Statistics and repealing

egulation

(EC, Euratom) No 1101/2008 of the European Parliament and of the Council on the transmission of data subject to statis

tical confidentiality to the Statistical Office of the European Communities, Council Regulation (EC) No 322/97 on Community Statis

tics, and Council Decision 89/382/EEC, Euratom establishing a Committee on the Statistical Programmes of the European Communi

ties (OJ L 87, 31.3.2009, p. 164).

(

)

Commission

Decision 2012/504/EU of 17 September 2012 on Eurostat (OJ L 251, 18.9.2012, p. 49).

13.8.2019

Official Journal of the European Union C 271/1

from the physical CRE market. For this reason, it is therefore considered crucial to establish a

common mini

mum framework for the collection of the database which is required by national macroprudential authorities in

order to effectively monitor the physical CRE market. The need for such a harmonised framework becomes even

more apparent when the significant volume of cross-border CRE financing is taken into account. In this respect,

a new recommendation, designed to promote a common minimum framework for the development, production

and dissemination of the relevant harmonised indicators, should be added to Recommendation ESRB/2016/14.

In order to ensure the consistency and the quality of the relevant statistical data and to minimise the reporting

burden, the Commission (Eurostat) should also develop and promote statistical standards, methods and proce

dures for the collection of the required statistical data.

(4) Under Article 2 of Council Regulation (EU) No 1096/2010

(

)

, the ECB is required to ensure the secretariat of the

ESRB and thereby to provide analytical, statistical, logistical and administrative support to the ESRB. In addition,

under Article 5.3 of the Statute of the European System of Central Banks and of the European Central Bank, the

ECB is required to contribute to the harmonisation, where necessary, of the rules and practices governing the

collection, compilation and distribution of statistics in the areas within its fields of competence. In this respect, it

is important to ensure close cooperation and appropriate coordination between the European Statistical Sys

tem

(

)

and the European System of Central Banks (ESCB). To that end, and in accordance with Article 6(3) of

Regulation (EC) No 223/2009, the ongoing consultation activities and the cooperation between the Commission

(Eurostat) and the ECB are deemed to be of particular importance for the purpose of developing the required

statistical standards, methods and procedures.

(5) The statistical work most recently carried out by the ESCB Statistics Committee – assisted by its Real Estate Task

ce – on the sources of data on indicators related to the financing of CRE and RRE has highlighted the need

for amendments to certain definitions in order to facilitate the monitoring activities of the national macropru

dential authorities. While it is acknowledged that Regulation (EU) 2016/867 of the European Central Bank

(

which

introduced the AnaCredit project, cannot be relied on alone to fulfil the data needs of national macropru

dential authorities, the definitions of commercial real estate and of residential real estate in Recommendation

ESRB/2016/14 should nevertheless be amended in order to align them more closely with the broader definitions

used in Regulation (EU) 2016/867 in order to facilitate the required financial stability analyses and allow for

a full comparability across countries.

(6) However, amendments t

definitions set out in Recommendation ESRB/2016/14 should not prevent national

macroprudential authorities from making use of additional real estate indicators and breakdowns which, based

on the definitions and metrics of those national macroprudential authorities, take into consideration the speci

ficities of their national CRE and RRE markets and are relevant from the financial stability perspective. This

would also ensure adherence by national macroprudential authorities to the principle of proportionality as pro

vided for in Recommendation ESRB/2016/14.

(7) Recommendation ESRB/2016/14 r

equests addressees to report to the ESRB and the Council on the actions

under

taken in response to that Recommendation, or to adequately justify any inaction, in compliance with the

timelines set out in the Recommendation. In this respect, the addressees have made progress towards implement

ing Recommendation ESRB/2016/14 within the recommended timelines. However, the work of some national

macroprudential authorities has been delayed by practical issues, such as the need to establish reporting struc

tures, to identify data sources and to address issues related to the confidentiality of data.

(8) In order to ensure the implementation of Recommendation ESRB/2016/14,

it is therefore necessary to extend

certain deadlines set forth therein. Extending these deadlines will provide national macroprudential authorities

with more time to sort out the abovementioned practical issues. The lack of commonly agreed working defini

tions is of particular concern as regards the relevant indicators on the physical CRE market, and, together with

operational constraints on data availability, makes it difficult to accurately assess and compare risks across

national markets. Therefore the deadlines for implementation of Recommendation ESRB/2016/14 in relation to

hose indicators for which national macroprudential authorities do not have the relevant information should be

extended further, in order to allow sufficient time for the development of the necessary definitions and for data

collection.

(

)

Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning

functioning of the European Systemic Risk Board (OJ L 331, 15.12.2010, p. 162).

(

)

The

European Statistical System (ESS) is the partnership between the Community statistical authority, which is the Commission (Euro

stat), and the national statistical institutes (NSIs) and other national authorities responsible in each Member State for the development,

production and dissemination of European statistics.

(

)

egulation (EU) 2016/867 of the European Central Bank of 18 May 2016 on the collection of granular credit and credit risk data

(ECB/2016/13) (OJ L 144, 1.6.2016, p. 44).

C 271/2

Official Journal of the European Union 13.8.2019

(9) The Gener

al Board does not consider that the extension of certain deadlines established in Recommendation

ESRB/2016/14 will jeopardise the orderly functioning of the financial markets. Additionally, the General Board

does not consider that such an extension would consequently lead to the possibility that addressees might not

implement Recommendation ESRB/2016/14.

(10) The ESRB also ac

knowledges that further technical guidance and work on the target definitions and indicators

may be required in order to accommodate the specificities of markets or market segments, as well as to ensure

the statistical quality of the data. Further amendments to Recommendation ESRB/2016/14 may therefore also be

necessary to address future developments regarding those target definitions and indicators.

(11) Therefore, Recommendation ESRB/2016/14 should be amended accordingly,

HAS ADOPTED THIS RECOMMENDATION:

AMENDMENTS

Recommendation ESRB/2016/14 is amended as follows:

1. in Section 1, paragraph 1 of Recommendation C i

s replaced by the following:

‘

1. National macroprudential authorities are recommended to implement a risk monitoring framework for their

domestic CRE sector. For this purpose, the following set of indicators is recommended for effective monitoring

of risks arising from the CRE market:

Indicators on the physical CRE market:

(a) price index;

(b) rental index;

(d) vacancy rates;

(e) construction starts;

Indicators on the financial system’s CRE credit exposures:

(f) CRE lending flows (including CRE property under development or construction);

(g) flows of non-performing CRE loans (including CRE property under development or construction);

(h) flows of loan loss provisions on CRE lending (including CRE property under development or construction);

(i) flows of loan loss pr

ovisions on lending for CRE property under development or construction (as part of

CRE lending);

(j) CRE lending stocks (including CRE property under development or construction);

(k) stocks of non-performing CRE loans (including CRE property under development or construction);

(l) stocks of loan loss pr

ovisions on CRE lending (including CRE property under development or

construction);

(m) stocks of lending for CRE property under development or construction (as part of CRE lending);

(n) stocks of non-per

forming loans for CRE property under development or construction (as part of CRE

lending);

(o) stocks of loan loss pr

ovisions on lending for CRE property under development or construction (as part of

CRE lending).

Indicators on CRE lending standards:

(p) weighted average of the LTV-O for the flows of CRE loans;

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Official Journal of the European Union C 271/3

(q) weighted average of the current loan-to-value ratio (LTV-C) for the stocks of CRE loans;

(r) weighted a

verage of the interest coverage ratio at origination (ICR-O) for the flows of CRE loans and

weighted average of the current interest coverage ratio (ICR-C) for the stocks of CRE loans;

(s) weighted average of the debt service coverage ratio at origination (DSCR-O) for the flows of CRE loans and

weighted average of the current debt service coverage ratio (DSCR-C) for the stocks of CRE loans.

The information on these indicators should relate to credit providers on a solo basis and should be sufficiently

representative of the domestic CRE market.’;

2. in Section 1, paragraph 2 of Recommendation D is replaced by the following:

‘2. National macroprudential authorities are recommended to monitor risks in relation to the different indicators

on the basis of the following information as specified in Templates A, B and C of Annex III to this

Recommendation:

(a) For the price index, rental index, rental yield index, vacancy rates and construction starts, national macro

prudential authorities should consider a breakdown by:

— property type;

— property location.

(b) For f

lows and stocks of valuation adjustments on CRE investments, national macroprudential authorities

should consider a breakdown by:

— property type;

— property location;

— investor type;

— investor nationality.

lows and stocks and for each of the breakdowns of lending to CRE (including CRE prop

erty under development or construction) – i.e. lending for property held by owners for the purpose of

conducting their business, purpose or activity, either existing or under construction; lending for rental hous

ing; lending for income-producing real estate (other than rental housing); lending for CRE property under

development; and lending for social housing – national macroprudential authorities should consider

a further breakdown by:

— property type;

— property location;

— lender type;

— lender nationality.

(d) For flows and stocks of non-performing CRE loans and for each of the breakdowns of non-performing CRE

loans

(including CRE property under development or construction) – i.e. lending for property held by own

s for the purpose of conducting their business, purpose or activity, either existing or under construction;

lending for rental housing; lending for income-producing real estate (other than rental housing); lending for

CRE property under development; and lending for social housing – national macroprudential authorities

should consider a further breakdown by:

— property type;

— property location;

— lender type;

— lender nationality.

C 271/4

Official Journal of the European Union 13.8.2019

(e) For f

lows and stocks of loan loss provisions on CRE lending and for each of the breakdowns of loan loss

provisions on CRE lending (including CRE property under development or construction) – i.e. lending for

property held by owners for the purpose of conducting their business, purpose or activity, either existing or

under construction; lending for rental housing; lending for income-producing real estate (other than rental

housing); lending for CRE property under development; and lending for social housing – national macro

prudential authorities should consider a further breakdown by:

— property type;

— property location;

— lender type;

— lender nationality.

The breakdo

wns as referred to in points (a) to (e) above are to be considered as the recommended minimum.

National macroprudential authorities may add additional breakdowns as they may deem necessary for financial

stability purposes.’;

3. in Section 1, the following Recommendation is added:

‘

Recommendation F – Establishment of a common minimum framework for the physical commercial real

estate market

1. The Commission (Eur

ostat) is recommended to propose Union legislation establishing a common minimum

framework for the development, production and dissemination of a database on indicators on the physical CRE

market referred to in paragraphs (a) to (e) of sub-recommendation C(1).

2. The Commission (Eurostat) is also recommended to develop and promote statistical standards, sources, methods

and pr

ocedures for developing the database on the indicators on the physical CRE market referred to in para

graphs (a) to (e) of sub-recommendation C(1), in particular to ensure the quality of this set of indicators and

minimise the reporting burden.’;

4. Section 2(1)(1) is amended as follows:

(a) point (3) is replaced by the following:

‘“buy-to-let housing or pr

operty” means any RRE directly owned by a natural person primarily for letting to

tenants;’;

(b) point (4) is replaced by the following:

‘

“commercial real estate” (CRE) means any income-producing real estate, either existing or under development,

including rental housing; or real estate used by the owners of the property for conducting their business, pur

pose or activity, either existing or under construction; that is not classified as RRE; and includes social housing.

If a property has a mixed CRE and RRE use, it should be consider

ed as different properties (based for example

on the surface areas dedicated to each use) whenever it is feasible to make such breakdown; otherwise, the

property can be classified according to its dominant use;’;

‘

“commercial real estate (CRE) loan” means a loan extended to a legal entity aimed at acquiring income-produc

ing real estate (or set of properties defined as income-producing real estate), either existing or under develop

ment, or real estate used by the owners of the property for conducting their business, purpose or activity (or set

of such properties), either existing or under construction, or secured by a commercial real estate property (or

set of commercial real estate properties);’;

(d) the following point (16a) is inserted:

‘

“income-producing property under development” means all property under construction and intended to pro

vide, upon completion, an income to its owner in the form of rents or profits from its sale, but does not

include buildings being demolished or sites being cleared for possible development in the future;’;

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Official Journal of the European Union C 271/5

(e) point (32) is replaced by the following:

‘

“owner occupied housing or property” means any residential real estate owned by a natural person for the

purpose of providing shelter to its owner;’;

(f) point (34) is deleted;

(g) the following point (36a) is inserted:

‘

“rental housing” means any real estate which is owned by legal entities primarily for letting to tenants;’

(h) point (38) is replaced by the following:

‘“residential real estate” (RRE) means any immovable property available for dwelling purposes, either existing or

under construction, acquired, built or renovated by a natural person, including buy-to-let housing. If a property

has a mixed use, it should be considered as different properties (based for example on the surface areas dedi

cated to each use) whenever it is feasible to make such breakdown; otherwise, the property can be classified

according to its dominant use;’;

(i) point (39) is replaced by the following:

‘“residential real estate (RRE) loan” means a loan to a natural person secured by a residential real estate property,

independent of the purpose of the loan;’;

5. Section 2(3) is replaced by the following:

‘

3. Timeline for the follow-up

Addressees are requested to report to the ESRB and the Council on the actions taken in response to this Rec

ommendation, or adequately justify any inaction, in compliance with the following timelines.

1. Recommendation A

(a) By 31 December 2019, national macroprudential authorities are requested to deliver to the ESRB and

the Council an interim report on the information already available, or expected to be available, for the

implementation of Recommendation A.

(b) By 31 December 2020, national macr

oprudential authorities are requested to deliver to the ESRB and

the Council a final report on the implementation of Recommendation A.

2. Recommendation B

(a) By 31 December 2019, national macroprudential authorities are requested to deliver to the ESRB and

the Council an interim report on the information already available, or expected to be available, for the

implementation of Recommendation B.

(b) By 31 December 2020, national macroprudential authorities are requested to deliver to the ESRB and

the Council a final report on the implementation of Recommendation B.

3. Recommendation C

(a) By 31 December 2019, national macroprudential authorities are requested to deliver to the ESRB and

the Council an interim report on the information already available, or expected to be available, for the

implementation of Recommendation C.

(b) By 31 December 2021, national macr

oprudential authorities are requested to deliver to the ESRB and

the Council a final report on the implementation of Recommendation C.

oprudential authorities do not have the relevant information in relation to those

indicators referred to in points (a) to (e) of Recommendation C(1), those authorities are requested to

deliver to the ESRB and the Council a final report on the implementation of Recommendation

C in

elation to those indicators at the latest by 31 December 2025.

4. Recommendation D

(a) By 31 December 2019, national macr

oprudential authorities are requested to deliver to the ESRB and

the Council an interim report on the information already available, or expected to be available, for the

implementation of Recommendation D.

C 271/6

Official Journal of the European Union 13.8.2019

(b) By 31 December 2021, national macr

oprudential authorities are requested to deliver to the ESRB and

the Council a final report on the implementation of Recommendation D.

oprudential authorities do not have the relevant information in relation to those

indicators referred to in point (a) of Recommendation D(2) as specified in Template A of Annex III to

this Recommendation, those authorities are requested to deliver to the ESRB and the Council a final

report on the implementation of Recommendation D in relation to those indicators at the latest by

31 December 2025.

5. Recommendation E

(a) By 31 December 2017, t

he ESAs are requested to define a template for the publication of data on the

exposures of the entities under the scope of their supervision to each of the national CRE markets in the

Union.

(b) By 30 June 2018, t

he ESAs are requested to publish the data referred to in point (a) as at 31 December

2017.

o in point (a) as at 31 December of the preceding year.

6. Recommendation F

(a) By 31 December 2021, t

he Commission (Eurostat) is requested to deliver to the ESRB and the Council

an interim report containing a first assessment of the implementation of Recommendation F.

(b) By 31 December 2023, t

he Commission (Eurostat) is requested to deliver to the ESRB and the Council

a final report on the implementation of Recommendation F.’;

6. Annex I is replaced by Annex I to this Recommendation;

7. Annex II is replaced by Annex II to this Recommendation;

8. Annex III is replaced by Annex III to this Recommendation;

9. Annex IV is replaced by Annex IV to this Recommendation;

10. Annex V is replaced by Annex V to this Recommendation.

Done at Frankfurt am Main, 21 March 2019.

The Head of the ESRB Secretariat,

on behalf of the General Board of the ESRB

Francesco MAZZAFERRO

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Official Journal of the European Union C 271/7

ANNEX I

Annex I to Recommendation ESRB/2016/14 is replaced by the following:

‘ANNEX I

COMPLIANCE CRITERIA FOR THE RECOMMENDATIONS

1. Recommendation A

National macroprudential authorities will be deemed to comply with Recommendations A(1) and A(2), where they:

a) assess whether the relevant indicators on lending standards for RRE loans are considered or implemented in the risk

monit

oring framework of the RRE sector in their jurisdiction;

b) assess progress on the use of the indicators specified in Recommendation A(1) for such monitoring;

c) assess the extent to which the information, already available or expected to be available in the future, on the relevant

indicat

ors is sufficiently representative of current lending standards in their RRE loan market;

d) assess whe

ther buy-to-let housing represents a significant source of risks stemming from the domestic real estate

sector or constitutes a significant share of the stock or flows of total RRE lending;

e) in cases where buy

-to let housing is considered a significant source of risks stemming from the domestic real estate

sector or constitutes a significant share of the stock or flows of total RRE lending, assess progress on the use of the

indicators for risk monitoring specified in Recommendation A(2).

National macroprudential authorities will be deemed to comply with Recommendations A(3) and A(4) where they:

a) ensure t

he adoption of the methods specified in Annex IV for the calculation of the indicators listed in Recommen

dations A(1) and A(2);

b) in cases where ano

ther method is used in addition to that specified in Annex IV for the calculation of the relevant

indicators, report on the method’s technical features and its effectiveness in monitoring risks arising from the RRE

sector;

c) ensure t

hat the relevant indicators listed in Recommendations A(1) and A(2) are used to monitor risks in the RRE

sector at least annually.

2. Recommendation B

National macroprudential authorities will be deemed to comply with Recommendations B(1) and B(2), where they:

a) assess pr

ogress on the monitoring of the univariate distribution and the selected joint distributions of the relevant

indicators as specified in Template A of Annex II;

b) assess pr

ogress on the use of the information specified in Recommendation B(2) and in Template A of Annex II as

a guidance to monitor the relevant risks.

In cases wher

e buy-to-let housing is considered a significant source of risks stemming from the domestic real estate

sector or constitutes a significant shar

e of the stock or flows of total RRE lending, national macroprudential authorities

will be deemed to comply with Recommendation B(3) where they:

a) assess pr

ogress on the separate monitoring of the relevant indicators for buy-to-let housing and owner occupied

properties;

b) assess pr

ogress on the monitoring of the relevant data broken down by the dimensions as specified in Templates

A and B of Annex II.

C 271/8

Official Journal of the European Union 13.8.2019

3. Recommendation C

National macroprudential authorities will be deemed to comply with Recommendations C(1) and C(2) where they:

a) assess whether the relevant indicators for domestic CRE exposures are considered or implemented in the risk moni

toring framework for the CRE sector in their jurisdiction;

b) ensure inclusion in t

he risk monitoring framework of the indicators on the physical CRE market, the indicators on

financial system credit exposures and the indicators on lending standards;

c) assess whether investments represent a significant source of financing for the domestic CRE sector;

d) in cases where in

vestments are considered a significant source of financing for the domestic CRE sector, assess

progress on the use of the additional indicators for risk monitoring specified in Recommendation C(2);

e) assess progress on the use of the indicators specified, at a minimum, in Recommendation C(1) and, where applicable,

Recommendation C(2);

f) assess whether the information on these indicators (already available or expected to be available) is sufficiently repre

sent

ative of the domestic CRE market.

National macroprudential authorities will be deemed to comply with Recommendations C(3) and C(4) where they:

a) ensure the adoption of the methods for the calculation of the indicators listed in Recommendation C(1) and Recom

mendation

C(2) as specified in Annex V and, where appropriate for CRE, in Annex IV;

b) in cases where ano

ther method is used in addition to that specified in Annex IV and Annex V for the calculation of

the relevant indicators, report on the method’s technical features and its effectiveness in monitoring risks arising

from the CRE sector;

c) ensure t

hat the indicators listed in Recommendation C(1) are used to monitor developments in the CRE sector at

least quarterly for indicators on the physical CRE market, lending flows (including flows of non-performing loans

and loan loss provisions) and the corresponding lending standards, and at least annually for stocks of loans (includ

ing stocks of non-performing loans and loan loss provisions) and the corresponding lending standards;

d) in cases wher

e investments are considered a significant source of financing for the domestic CRE sector, ensure that

the indicators listed in Recommendation C(2) are used to monitor developments in the CRE sector at least quarterly

for investment flows (including valuation adjustments on investments) and at least annually for stocks of investments

(including valuation adjustments on investments).

4. Recommendation D

National macroprudential authorities will be deemed to comply with Recommendation D where they:

a) assess progress in monitoring the relevant indicators as specified in Templates A, B and C of Annex III;

b) assess pr

ogress on the use of the relevant information as specified in Recommendation D(2) and indicated in Tem

plates A, B and C of Annex III as a guidance to monitor the relevant risks;

c) in cases where in

vestments are considered a significant source of financing for the domestic CRE sector, assess

progress on the use of the relevant information as specified in Recommendation D(3) and indicated in Template B of

Annex III as a guidance to monitor relevant risks;

d) in cases where additional indicat

ors are used to monitor developments in the CRE sector, report on the additional

information used for monitoring risks.

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Official Journal of the European Union C 271/9

5. Recommendation E

The ESAs will be deemed to comply with Recommendation E where they:

a) define a template for the publication of data on the exposures of the entities under the scope of their supervision to

eac

h national CRE market in the Union;

b) publish at leas

t annually aggregated data collected under existing reporting requirements on the exposures of the

entities under the scope of their supervision to each national CRE market in the Union.

6. Recommendation F

The Commission (Eurostat) will be deemed to comply with Recommendation F where:

a) based on t

he suitability of the definitions and breakdowns for the relevant indicators on the physical CRE market

which are currently used within Member States, it proposes Union legislation establishing a common minimum

framework for the development, production and dissemination of a database on the relevant indicators with the aim

of harmonising such indicators;

b) it ensures the alignment of the proposed legislation with the indicators and their definitions, as used for supervisory

financial stability purposes, so as to avoid an unjustified increase in the burden on reporting entities;

c) it ensures t

he quality of the relevant indicators on the physical CRE market by developing statistical standards,

sources, methods and procedures for developing the database on the relevant indicators;

d) it ensures that the implementation of the developed statistical standards, sources, methods and procedures relating to

he database on the relevant indicators on the physical CRE market does not lead to an unjustified increase in the

burden on reporting entities;

e) it pr

omotes the implementation of the statistical standards, sources, methods and procedures developed for the pro

duction of the database on relevant indicators on the physical CRE market.’.

C 271/10

Official Journal of the European Union 13.8.2019

ANNEX II

Annex II to Recommendation ESRB/2016/14 is replaced by the following:

‘ANNEX II

INDICATIVE TEMPLATES FOR INDICATORS ON THE RESIDENTIAL REAL ESTATE SECTOR

1. Template A: indicators and related breakdowns for RRE loans

Templates for residential real estate

FLOWS = new pr

oduction of RRE loans within the reporting period, as considered by the lender. National macro-prudential authorities which are able to distinguish between

truly new RRE loans and renegotiated loans are provided the option to identify renegotiated loans as a separate breakdown.

STOCKS = Data for the stocks of RRE loans at reporting date (e.g. end of year)

ncu = amount in national currency

# = number of contracts

y = year(s)

Avg = average of the relevant ratio

o/w = of which

UNIVARIATE DISTRIBUTION

Overview of RRE loan portfolio FLOWS Loan-service-to-income at origination (LSTI-O) FLOWS

Loans disbursed

ncu, #

WEIGHTED AVERAGE

Avg (in

o/w buy-to-let

ncu, #

o/w buy-to-let

Avg (in

o/w owner-occupied

ncu, #

o/w owner-occupied

Avg (in

o/w first-time buyers

ncu, #

o/w first-time buyers

Avg (in

o/w loans in foreign currency

ncu, #

o/w loans in foreign currency

Avg (in

o/w fully amortising

ncu, #

o/w fully amortising

Avg (in

o/w partially amortising

ncu, #

o/w partly amortising

Avg (in

o/w non-amortising (*)

ncu, #

o/w non-amortising (*)

Avg (in

13.8.2019

Official Journal of the European Union C 271/11

Overview of RRE loan portfolio FLOWS Loan-service-to-income at origination (LSTI-O) FLOWS

o/w property in individual territories (**)

ncu, #

o/w property in individual territories (**)

Avg (in

o/w ≤ 1y initial interest rate fixation period

ncu, #

o/w ≤ 1y initial interest rate fixation period

Avg (in

o/w ] 1y; 5y] initial interest rate fixation period

ncu, #

o/w ] 1y; 5y] initial interest rate fixation period

Avg (in

o/w ] 5y; 10y] initial interest rate fixation period

ncu, #

o/w ] 5y; 10y] initial interest rate fixation period

Avg (in

o/w > 10y initial interest rate fixation period

ncu, #

o/w > 10y initial interest rate fixation period

Avg (in

o/w renegotiated (optional)

ncu, #

DISTRIBUTION

≤10

ncu, #

]10 % ; 20 %]

ncu, #

Loan-to-value at origination (LTV-O)

FLOWS

]20 % ; 30 %]

ncu, #

WEIGHTED AVERAGE

Avg (in

]30 % ; 40 %]

ncu, #

o/w buy-to-let

Avg (in

]40 % ; 50 %]

ncu, #

o/w owner-occupied

Avg (in

]50 % ; 60 %]

ncu, #

o/w first-time buyers

Avg (in

> 60 %

ncu, #

o/w loans in foreign currency

Avg (in

Not available

ncu, #

o/w fully amortising

Avg (in

o/w partially amortising

Avg (in

C 271/12

Official Journal of the European Union 13.8.2019

Loan-to-value at origination (LTV-O)

FLOWS

o/w non-amortising (*)

Avg (in

Debt-service-to-income at origination (DSTI-O)

(OPTIONAL)

FLOWS

o/w property in individual territories (**)

Avg (in

WEIGHTED AVERAGE

Avg (in %)

DISTRIBUTION

≤ 50 %

ncu, #

≤10 %

ncu, #

]50 % ; 60 %]

ncu, #

]10 % ; 20 %]

ncu, #

]60 % ; 70 %]

ncu, #

]20 % ; 30 %]

ncu, #

]70 % ; 80 %]

ncu, #

]30 % ; 40 %]

ncu, #

]80 % ; 90 %]

ncu, #

]40 % ; 50 %]

ncu, #

]90 % ; 100 %]

ncu, #

]50 % ; 60 %]

ncu, #

]100 % ; 110

ncu, #

> 60 %

ncu, #

> 110 %

ncu, #

Not available

ncu, #

Not available

ncu, #

Current loan-to-value (LTV-C) STOCKS Loan-to-income at origination (LTI-O) FLOWS

WEIGHTED AVERAGE

Avg (in

WEIGHTED AVERAGE

Avg

DISTRIBUTION

≤ 50 %

ncu, #

≤3

ncu, #

]50 % ; 60 %]

ncu, #

]3 ; 3,5]

ncu, #

13.8.2019

Official Journal of the European Union C 271/13

Current loan-to-value (LTV-C) STOCKS Loan-to-income at origination (LTI-O) FLOWS

]60 % ; 70 %]

ncu, #

]

3,5 ; 4]

ncu, #

]70 % ; 80 %]

ncu, #

]4 ; 4,5]

ncu, #

]80 % ; 90 %]

ncu, #

]

4,5 ; 5]

ncu, #

]90 % ; 100 %]

ncu, #

]5 ; 5,5]

ncu, #

]100 % ; 110 %]

ncu, #

]

5,5 ; 6]

ncu, #

> 110 %

ncu, #

> 6

ncu, #

Not available

ncu, #

Not available

ncu, #

Maturities at origination FLOWS Debt-to-income at origination (DTI-O) FLOWS

WEIGHTED AVERAGE

Avg (years)

WEIGHTED AVERAGE

Avg

DISTRIBUTION

≤ 5y

ncu, #

≤3

ncu, #

]5y ; 10y]

ncu, #

]3 ; 3,5]

ncu, #

]10y ; 15y]

ncu, #

]

3,5 ; 4]

ncu, #

]15y ; 20y]

ncu, #

]4 ; 4,5]

ncu, #

]20y ; 25y]

ncu, #

]

4,5 ; 5]

ncu, #

]25y ; 30y]

ncu, #

]5 ; 5,5]

ncu, #

]30y ; 35y]

ncu, #

]

5,5 ; 6]

ncu, #

> 35y

ncu, #

]

6,5 ; 7]

ncu, #

Not available

ncu, #

> 7

ncu, #

Not available

ncu, #

C 271/14

Official Journal of the European Union 13.8.2019

JOINT DISTRIBUTION

FLOWS

Loan-service-to-income at origination

(LSTI-O)

FLOWS

Loan-service-to-income at origination

(LSTI-O)

≤30

% ]30 % ; 50 %] >50 %

Initial interest rate fixation period

≤30 % ]30 % ; 50 %] >50 %

LTV-O ≤ 80

o/w ≤ 1y

ncu, # ncu, # ncu, #

Maturity at origination

o/w ] 1y; 5y]

ncu, # ncu, # ncu, #

≤ 20y

ncu, # ncu, # ncu, #

o/w ] 5y; 10y]

ncu, # ncu, # ncu, #

]20y ; 25y]

ncu, # ncu, # ncu, #

o/w > 10y

ncu, # ncu, # ncu, #

> 25y

ncu, # ncu, # ncu, #

LTV-O ]80 %-90

Maturity at origination

FLOWS

Debt-to-income at origination (DTI-O)

≤ 20y

ncu, # ncu, # ncu, #

Loan-to-value at origination (LTV-O)

≤ 4 ]4 ; 6] > 6

]20y ; 25y]

ncu, # ncu, # ncu, #

LTV-O ≤ 80 %

ncu, # ncu, # ncu, #

> 25y

ncu, # ncu, # ncu, #

LTV-O ]80 % ; 90 %]

ncu, # ncu, # ncu, #

LTV-O ]90 %-110

LTV-O ]90 % ; 110 %]

ncu, # ncu, # ncu, #

Maturity at origination

LTV-O >110

ncu, # ncu, # ncu, #

≤ 20y

ncu, # ncu, # ncu, #

]20y ; 25y]

ncu, # ncu, # ncu, #

> 25y

ncu, # ncu, # ncu, #

13.8.2019

Official Journal of the European Union C 271/15

FLOWS

Loan-service-to-income at origination

(LSTI-O)

LTV-O >110 %

Maturity at origination

≤ 20y

ncu, # ncu, # ncu, #

]20y ; 25y]

ncu, # ncu, # ncu, #

> 25y

ncu, # ncu, # ncu, #

(*) Where relevant, non-amortising loans for which redemption vehicles exist should be identified separately.

(**) RRE loans provided within the domestic financial system of any Member State may be collateralised by RRE property located in foreign territories. A row should be added for every such foreign territory

whic

h is deemed important for financial stability purposes.

2. Template B: indicators and related breakdowns for buy-to-let and owner occupied RRE loans

Additional templates for countries with a significant buy-to-let risk or market

FLOWS = new production of RRE loans within the reporting period, as considered by the lender. National macro-prudential authorities which are able to distinguish between

truly new RRE loans and renegotiated loans are provided with the option to identify renegotiated loans as a separate breakdown.

STOCKS = Data for the stocks of RRE loans at reporting date (e.g. end of year)

ncu = amount in national currency

# = number of contracts

y = year(s)

Avg = average of the relevant ratio

o/w = of which

BUY-TO-LET LOANS

Overview of buy-to-let loans FLOWS Interest coverage ratio at origination (ICR-O) FLOWS

Loans disbursed

ncu, #

WEIGHTED AVERAGE

Avg

o/w first-time buyers

ncu, #

DISTRIBUTION

o/w loans in foreign currency

ncu, #

≤ 100 %

ncu, #

o/w fully amortising

ncu, #

] 100

% ; 125 %]

ncu, #

C 271/16

Official Journal of the European Union 13.8.2019

Overview of buy-to-let loans FLOWS Interest coverage ratio at origination (ICR-O) FLOWS

o/w partially amortising

ncu, #

] 125

% ; 150 %]

ncu, #

o/w non-amortising (*)

ncu, #

] 150

% ; 175 %]

ncu, #

o/w property in individual territories (**)

ncu, #

] 175

% ; 200 %]

ncu, #

o/w ≤ 1y initial interest rate fixation period

ncu, #

> 200 %

ncu, #

o/w ] 1y; 5y] initial interest rate fixation period

ncu, #

o/w ] 5y; 10y] initial interest rate fixation period

ncu, #

o/w > 10y initial interest rate fixation period

ncu, #

Loan-to-rent ratio at origination (LTR-O)

FLOWS

Loan-to-value at origination (LTV-O)

FLOWS

WEIGHTED AVERAGE

Avg

WEIGHTED AVERAGE

Avg (in

DISTRIBUTION

≤ 5

ncu, #

≤ 50 %

ncu, #

] 5 ; 10]

ncu, #

]50 % ; 60 %]

ncu, #

] 10 ; 15]

ncu, #

]60 % ; 70 %]

ncu, #

] 15 ; 20 ]

ncu, #

]70 % ; 80

ncu, #

> 20

ncu, #

]80 % ; 90 %]

ncu, #

]90 % ; 100 %]

ncu, #

]100 % ; 110 %]

ncu, #

> 110 %

ncu, #

Not available

ncu, #

13.8.2019

Official Journal of the European Union C 271/17

OWNER OCCUPIED LOANS

Overview of owner occupied loans FLOWS Loan-service-to-income at origination (LSTI-O) FLOWS

Loans disbursed

ncu, #

WEIGHTED AVERAGE

Avg (in

o/w first-time buyers

ncu, #

o/w first-time buyers

Avg (in

o/w loans in foreign currency

ncu, #

o/w loans in foreign currency

Avg (in

o/w fully amortising

ncu, #

o/w fully amortising

Avg (in

o/w partially amortising

ncu, #

o/w partly amortising

Avg (in

o/w non-amortising (*)

ncu, #

o/w non-amortising (*)

Avg (in

o/w property in individual territories (**)

ncu, #

o/w property in individual territories (**)

Avg (in

o/w ≤ 1y initial interest rate fixation period

ncu, #

o/w ≤ 1y initial interest rate fixation period

Avg (in

o/w ] 1y; 5y] initial interest rate fixation period

ncu, #

o/w ] 1y; 5y] initial interest rate fixation period

Avg (in

o/w ] 5y; 10y] initial interest rate fixation period

ncu, #

o/w ] 5y; 10y] initial interest rate fixation period

Avg (in

o/w > 10y initial interest rate fixation period

ncu, #

o/w > 10y initial interest rate fixation period

Avg (in

DISTRIBUTION

Current loan-to-value (LTV-C)

FLOWS

≤10

ncu, #

WEIGHTED AVERAGE

Avg (in

]10 % ; 20 %]

ncu, #

o/w first-time buyers

Avg (in

]20 % ; 30 %]

ncu, #

C 271/18

Official Journal of the European Union 13.8.2019

Current loan-to-value (LTV-C)

FLOWS

Loan-service-to-income at origination (LSTI-O) FLOWS

o/w loans in foreign currency

Avg (in

]30 % ; 40 %]

ncu, #

o/w fully amortising

Avg (in %)

]40 % ; 50 %]

ncu, #

o/w partially amortising

Avg (in

]50 % ; 60 %]

ncu, #

o/w non-amortising (*)

Avg (in %)

> 60 %

ncu, #

o/w property in individual territories (**)

ncu, #

Not available

ncu, #

DISTRIBUTION

≤ 50 %

ncu, #

]50 % ; 60 %]

ncu, #

Loan-to-income at origination (LTI-O)

FLOWS

]60 % ; 70 %]

ncu, #

WEIGHTED AVERAGE

Avg

]70 % ; 80 %]

ncu, #

DISTRIBUTION

]80 % ; 90 %]

ncu, #

≤3

ncu, #

]90 % ; 100 %]

ncu, #

]3 ; 3,5]

ncu, #

]100 % ; 110 %]

ncu, #

]

3,5 ; 4]

ncu, #

> 110 %

ncu, #

]4 ; 4,5]

ncu, #

Not available

ncu, #

]

4,5 ; 5]

ncu, #

]5 ; 5,5]

ncu, #

]

5,5 ; 6]

ncu, #

> 6

ncu, #

Not available

ncu, #

13.8.2019

Official Journal of the European Union C 271/19

Current loan-to-value (LTV-C) STOCKS

WEIGHTED AVERAGE

Avg (in

DISTRIBUTION

≤ 50 %

ncu, #

]50 % ; 60 %]

ncu, #

]60 % ; 70 %]

ncu, #

]70 % ; 80 %]

ncu, #

]80 % ; 90 %]

ncu, #

]90 % ; 100 %]

ncu, #

]100 % ; 110 %]

ncu, #

> 110 %

ncu, #

Not available

ncu, #

Maturities at origination in years

FLOWS

WEIGHTED AVERAGE

Avg (in years)

DISTRIBUTION

≤ 5y

ncu, #

]5y ; 10y]

ncu, #

]10y ; 15y]

ncu, #

]15y ; 20y]

ncu, #

]20y ; 25y]

ncu, #

]25y ; 30y]

ncu, #

]30y ; 35y]

ncu, #

> 35y

ncu, #

Not available

ncu, #

(*) Where relevant, non-amortising loans for which redemption vehicles exist should be identified separately.

whic

h is deemed important for financial stability purposes.’.

C 271/20

Official Journal of the European Union 13.8.2019

ANNEX III

Annex III to Recommendation ESRB/2016/14 is replaced by the following:

‘ANNEX III

INDICATIVE TEMPLATES FOR INDICATORS ON THE COMMERCIAL REAL ESTATE SECTOR

1. Template A: indicators on the physical market

Physical market indicators

Indicator

Breakdown

Frequency

Property type

(

) Property location (

)

Physical market

CRE price index Quarterly I I

Rental index Quarterly I I

Rental yield index Quarterly I I

Vacancy rates Quarterly R R

Construction starts Quarterly # #

(

)

Property type is broken down into office, retail, industrial, residential and other (all domestic market).

(

)

Property location is broken down into domestic prime and domestic non-prime.

I = Index

R = Ratio

# = Square metres

2. Template B: indicators on the financial system’s exposures

Exposures indicators

Indicator

Breakdown

Total

Frequency

Property

type

(

)

Property

location (

)

Investor type (

) (

)

Lender

type (

)

Investor

(

) / lender

nationality

(

)

Flows (

)

Investments in CRE

(

)

Quarterly nc nc nc nc nc

— of which direct CRE holdings Quarterly nc nc nc nc nc

13.8.2019

Official Journal of the European Union C 271/21

Indicator

Breakdown

Total

Frequency

Property

type (

)

Property

location

(

)

Investor type (

)

(

)

Lender

type (

)

Investor (

)

/ lender

nationality (

)

— of which indirect CRE holdings Quarterly nc nc nc

Valuation adjustments on CRE investments Quarterly nc nc nc nc nc

Lending to CRE (incl. CRE property under development or

constr

uction)

Quarterly nc nc nc nc nc

— of which loans for acquiring property held by owners for

the purpose of conducting their business, purpose or

activity, either existing or under construction

Quarterly nc nc nc nc nc

— of which loans for acquiring rental housing Quarterly nc nc nc nc nc

— of which loans for acquiring income-producing real estate

(other than rental housing)

Quarterly nc nc nc nc nc

— of which loans for acquiring CRE property under

velopment

Quarterly nc nc nc nc nc

— of which loans for acquiring property held for social

housing

Quarterly nc nc nc nc nc

Non-performing CRE loans (incl. CRE property under

development or construction)

Quarterly nc nc nc nc nc

— of which loans for acquiring property held by owners for

the purpose of conducting their business, purpose or

activity, either existing or under construction

Quarterly nc nc nc nc nc

C 271/22

Official Journal of the European Union 13.8.2019

Indicator

Breakdown

Total

Frequency

Property

type (

)

Property

location

(

)

Investor type (

)

(

)

Lender

type (

)

Investor (

)

/ lender

nationality (

)

— of which loans for acquiring rental housing Quarterly nc nc nc nc nc

— of which loans for acquiring income-producing real estate

ther than rental housing)

Quarterly nc nc nc nc nc

— of which loans for acquiring CRE property under

development

Quarterly nc nc nc nc nc

— of which loans for acquiring property held for social

housing

Quarterly nc nc nc nc nc

Loan loss provisions on CRE lending (incl. CRE property under

development or construction)

Quarterly nc nc nc nc nc

— of which loans for acquiring property held by owners for

the purpose of conducting their business, purpose or

activity, either existing or under construction

Quarterly nc nc nc nc nc

— of which loans for acquiring rental housing Quarterly nc nc nc nc nc

— of which loans for acquiring income-producing real estate

(other than rental housing)

Quarterly nc nc nc nc nc

— of which loans for acquiring CRE property under

development

Quarterly nc nc nc nc nc

— of which loans for acquiring property held for social

housing

Quarterly nc nc nc nc nc

13.8.2019

Official Journal of the European Union C 271/23

Indicator

Breakdown

Total

Frequency

Property

type

(

)

Property

location (

)

Investor type (

) (

)

Lender

type (

)

Investor

(

) / lender

nationality

(

)

Stocks (

)

Investments in CRE (

)

Annually nc nc nc nc nc

— of which direct CRE holdings Annually nc nc nc nc nc

— of which indirect CRE holdings Annually nc nc nc

Valuation adjustments on CRE investments Annually nc nc nc nc nc

Lending to CRE (incl. CRE property under development or

construction)

Annually nc nc nc nc nc

— of which non-performing CRE loans Annually nc nc nc nc nc

— of which loans for acquiring property held by owners for

the purpose of conducting their business, purpose or

activity, either existing or under construction

Annually nc nc nc nc nc

— of which loans for acquiring rental housing Annually nc nc nc nc nc

— of which loans for acquiring income-producing real estate

ther than rental housing)

Annually nc nc nc nc nc

— of which loans for acquiring property held for social

housing

Annually nc nc nc

nc nc

C 271/24

Official Journal of the European Union 13.8.2019

Indicator

Breakdown

Total

Frequency

Property

type (

)

Property

location

(

)

Investor type (

)

(

)

Lender

type (

)

Investor (

)

/ lender

nationality (

)

Loan loss provisions on CRE lending Annually nc nc nc nc nc

— of which non-performing CRE loans Annually nc nc nc nc nc

— of which loans for acquiring property held by owners for

he purpose of conducting their business, purpose or

activity, either existing or under construction

Annually nc nc nc nc nc

— of which loans for acquiring rental housing Annually nc nc nc nc nc

— of which loans for acquiring income-producing real estate

ther than rental housing)

Annually nc nc nc nc nc

— of which loans for acquiring property held for social

housing

Annually nc nc nc nc nc

Lending to CRE property under development (as part of CRE

lending)

Annually nc nc nc nc nc

— of which non-performing loans Annually nc nc nc nc nc

13.8.2019

Official Journal of the European Union C 271/25

Indicator

Breakdown

Total

Frequency

Property

type (

)

Property

location

(

)

Investor type (

)

(

)

Lender

type (

)

Investor (

)

/ lender

nationality (

)

Loan loss provisions on lending to CRE property under

velopment

Annually nc nc nc nc nc

(

)

Property type is broken down into office, retail, industrial, residential and other, where relevant for the indicator.

(

)

Property location is broken down into domestic prime, domestic non-prime, and foreign.

(

)

Investor type is broken down into banks, insurance companies, pension funds, investment funds, property companies and others.

(

)

Lender type is broken down into banks, insurance companies, pension funds, investment funds, property companies and others.

(

)

Nationality is broken down into domestic, European Economic Area and rest of the world.

(

)

Flows are on a gross basis for investments, lending and non-performing loans (only new loans/investments are covered without taking into account repayments or reductions on existing amounts).

Flows are on a net basis for valuation adjustments on investments and loan loss provisions.

(

)

Stocks data for the stock of CRE investments, valuation adjustments on CRE investments, CRE (non-performing) loans and loan loss provisions on CRE lending at reporting date.

(

)

Only in case investments represent a significant share of CRE financing.

nc = Amount in national currency

3. Template C: indicators on lending standards

Lending standards indicators (

)

Indicator Frequency Weighted average of ratios

Flows (

)

Loan-to-value at origination (LTV-O) Quarterly R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Quarterly R

— loans for acquiring rental housing

Quarterly R

— loans for acquiring income-producing real estate (other than rental housing)

Quarterly R

— loans for acquiring CRE property under development

Quarterly R

— loans for acquiring property held for social housing

Quarterly R

C 271/26

Official Journal of the European Union 13.8.2019

Indicator Frequency Weighted average of ratios

Interest coverage ratio at origination (ICR-O) Quarterly R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Quarterly R

— loans for acquiring rental housing

Quarterly R

— loans for acquiring income-producing real estate (other than rental housing)

Quarterly R

— loans for acquiring CRE property under development

Quarterly R

— loans for acquiring property held for social housing

Quarterly R

Debt service coverage ratio at origination (DSCR-O) Quarterly R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Quarterly R

— loans for acquiring rental housing

Quarterly R

— loans for acquiring income-producing real estate (other than rental housing)

Quarterly R

— loans for acquiring CRE property under development

Quarterly R

— loans for acquiring property held for social housing

Quarterly R

13.8.2019

Official Journal of the European Union C 271/27

Indicator Frequency Weighted average of ratios

Stocks (

)

Current loan-to-value (LTV-C) Annual R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Annual R

— loans for acquiring rental housing

Annual R

— loans for acquiring income-producing real estate (other than rental housing)

Annual R

— loans for acquiring CRE property under development

Annual R

— loans for acquiring property held for social housing

Annual R

Current interest coverage ratio (ICR-C) Annual R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Annual R

— loans for acquiring rental housing

Annual R

— loans for acquiring income-producing real estate (other than rental housing)

Annual R

— loans for acquiring CRE property under development

Annual R

— loans for acquiring property held for social housing

Annual R

C 271/28

Official Journal of the European Union 13.8.2019

Indicator Frequency Weighted average of ratios

Current debt service coverage ratio (DSCR-C) Annual R

— loans for acquiring property held by owners for the purpose of conducting their business, purpose or activity,

eit

her existing or under construction

Annual R

— loans for acquiring rental housing

Annual R

— loans for acquiring income-producing real estate (other than rental housing)

Annual R

— loans for acquiring CRE property under development

Annual R

— loans for acquiring property held for social housing

Annual R

(

)

Excludes property under development, which can be monitored using the loan-to-cost (LTC) ratio.

(

)

Flows data for the new production of CRE loans over the reporting period.

(

)

Stocks data for the stock of CRE loans at reporting date.

R = Ratio’

13.8.2019

Official Journal of the European Union C 271/29

ANNEX IV

Annex IV to Recommendation ESRB/2016/14 is replaced by the following:

‘ANNEX IV

GUIDANCE ON THE METHODS FOR MEASURING AND CALCULATING THE INDICATORS

This Annex provides high-level guidance on the methods for calculating the indicators used in the Templates of

Anne

x II and, where applicable, also Annex III. Its purpose is not to provide detailed technical instructions for complet

ing the Templates covering all possible cases. Moreover, the guidance should be interpreted as covering target definitions

and target methods, and in some cases divergences might be justified to accommodate for the specificities of markets or

market segments.

1. The loan-to-value ratio at origination (LTV-O)

1. LTV-O is defined as:

LTVO =

2. For the purpose of the calculation, ‘L’:

(a) Includes

all loans or loan tranc

hes secured by the borrower on the immovable property at the moment of origi

nation (irrespective of the purpose of the loan), following an aggregation of loans ‘by borrower’ and ‘by

collateral’.

(b) Is measured based on disbursed amounts and therefore does not include any undrawn amounts on credit lines. In

the

case of property still being constructed, ‘L’ is the sum of all loan tranches disbursed up to the reporting date,

and LTV-O is computed on the date of disbursement of any new loan tranche

(

). Alternatively, if the aforemen

tioned

calculation method is not available or does not correspond to the prevailing market practice, LTV-O can

also be calculated on the basis of the total loan amount granted and the expected value upon completion of the

RRE that is being constructed.

cured

loans part of the housing loan financing transaction, combining both secured and unsecured loans. In that

case, unsecured loans should also be included in ‘L’.

(d) Is not adjusted for the presence of other credit risk mitigants.

(e) Does not include costs and fees related to the RRE loan,

(f) Does not include loan subsidies.

3. For the purpose of the calculation, ‘V’:

(a) Is computed on the basis of the property’s value at origination, measured as the lower of:

1. the transaction value, e.g. as registered in a notarial deed, and

2. the value as assessed by an independent external or internal appraiser.

If only one value is available, this value should be used.

(

)

In the case of property still being constructed, the LTV-O at a given point n can be calculated as:

LTVO

i=1

+ Σ

i=1

ΔV

i,i−1

Where i = 1, …, n refers to the loan tranches disbursed up to time n, V

is the initial value of the real estate collateral (e.g. land) and

ΔV

i,i−1

represents the change in the property’s value that occurred during the periods up to the disbursement of the n-th loan

tranche.

C 271/30

Official Journal of the European Union 13.8.2019

(b) Does not take into account the value of planned renovation or construction works.

V’ accounts for the total value of the property up to the reporting

date (accounting for the increase in value due to the progress of the construction works). ‘V’ is assessed upon

disbursement of any new loan tranche, allowing for the computation of an updated LTV-O.

(d) Is not adjusted for the presence of other credit risk mitigants.

(e) Does not include costs and fees related to the RRE loan.

(f) Is no

t computed as the ‘long-term value’. Whereas the use of the long-term value could be justified by the pro

cyclicality of ‘V’, LTV-O aims at capturing credit standards at origination. Therefore, if, at the moment a RRE loan

is granted and the LTV-O is registered, the ‘V’ did not represent the value of the asset at origination as reported

in the lender’s records, it would not adequately capture the lender’s actual credit policy concerning LTV-O.

4. In addition to calculating the LTV-O in accordance with the method described in paragraphs 2 and 3 above, national

macr

oprudential authorities may also, if they consider it necessary in order to accommodate the specificities of their

markets, also calculate the LTV-O by deducting from the definition of ‘V’ in paragraph 3, the total amount of all

outstanding RRE loans, disbursed or not, that are secured by ‘senior liens’ on the property, instead of including these

loans

in the calculation of ‘L’ as described in paragraph 2.

5. Where t

he loan markets for buy-to-let and owner occupied properties are monitored separately, the definition of

LTV-O applies, subject to the following exceptions:

(a) for buy-to let loans:

— ‘L’ includes onl

y loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the buy-to-let loan.

— ‘

V’ includes only the value at origination of the buy-to-let property.

(b) for owner occupied loans:

— ‘

L’ includes only loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the owner occupied loan.

— ‘

V’ includes only the value at origination of the owner occupied property.

6. National macr

oprudential authorities should be attentive to the fact that LTV ratios are procyclical in nature and

should therefore consider such ratios with care in any risk monitoring framework. They could also investigate the

use of additional metrics such as the loan-to-long-term-value, where the value is adjusted according to the long-term

development of a market price index.

2. The current loan-to-value ratio (LTV-C)

1. LTV-C is defined as:

LTVC =

2. For the purpose of the calculation, ‘

LC’:

(a) Is measur

ed as the outstanding balance of the loan(s) - defined as ‘L’ in Section 1(2) - at the reporting date,

taking into account capital reimbursements, loan restructurings, new capital disbursements, incurred interest,

and, in the case of loans in foreign currencies, changes in the exchange rate.

(b) Is adjust

ed to take account of the savings accumulated in an investment vehicle intended to reimburse the loan

principal. The accumulated savings may be deducted from ‘LC’ only where the following conditions are satisfied:

1) the accumulated savings are unconditionally pledged to the creditor with the express purpose of reimbursing

the loan principal at the contractually anticipated dates; and

13.8.2019

Official Journal of the European Union C 271/31

2) an appr

opriate haircut, determined by the national macroprudential authority, is applied to reflect market

and/or third-party risks associated with the underlying investments.

3. For the purpose of the calculation, ‘VC’:

(a) Reflects t

he changes in the value of ‘V’, as defined in Section 1(3), since the most recent valuation of the prop

erty. The current value of the property should be assessed by an independent external or internal appraiser. If

such assessment is not available, the current value of the property can be estimated using a granular real estate

value index (e.g. based on transaction data). If such a real estate value index is also not available, a granular real

estate price index can be used after application of a suitably chosen mark-down to account for the depreciation

of the property. Any real estate value or price index should be sufficiently differentiated according to the geo

graphical location of the property and the property type.

(b) Is adjusted for changes in the prior liens on the property.

4. Where the RRE loan markets for buy-to-let and owner occupied properties are monitored separately, the definition of

TV-C applies, subject to the following exceptions:

(a) for buy-to let loans:

— ‘

LC’ includes only loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the buy-to-let loan.

— ‘

VC’ refers to the current value of the buy-to-let property.

(b) for owner occupied loans:

— ‘

LC’ includes only loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the owner occupied loan.

— ‘

VC’ includes only the current value of the owner occupied property.

3. The loan-to-income ratio at origination (LTI-O)

1. LTI-O is defined as:

LTIO =

2. For the purpose of the calculation, ’

L’ has the same meaning as in Section 1(2).

3. For t

he purpose of the calculation, ‘I’ is the borrower’s total annual disposable income as registered by the credit

provider at the moment of the RRE loan origination.

4. In de

termining a borrower’s ‘disposable income’, addressees are encouraged to comply with definition (1) to the

greatest extent possible and with definition (2) as a minimum:

Definition (1): ‘

disposable income’ = employee income + self-employment income (e.g. profits) + income from public

pensions + income from private and occupational pensions + income from unemployment benefits + income from

social transfers other than unemployment benefits + regular private transfers (such as alimonies) + gross rental

income from real estate property + income from financial investments + income from private business or partner

ship + regular income from other sources + loan subsidies – taxes – health care/social security/medical insurance

premiums + tax rebates.

For the purpose of this definition:

(a) ‘

gross rental income from real estate property’ includes both rental income from owned property on which no

RRE loan is currently outstanding and buy-to-let property. The rental income should be determined from the

information that is available to banks or otherwise imputed. If precise information is not available, a best es

ti

mate of rental income should be provided by the reporting institution, and the methodology used to obtain it

should be described;

C 271/32

Official Journal of the European Union 13.8.2019

(b) ‘

taxes’ should include, in order of importance, payroll taxes, tax credits, pension or insurance premiums, if

charged on gross income, specific taxes, e.g. property taxes, and other non-consumption taxes;

health care/social security/medical insurance premiums’ should include the fixed and compulsory expenditures

that in some countries are made after taxes;

(d) ‘

tax rebates’ should include restitutions from the tax authority that are linked to the RRE loan interest deduction;

(e) ‘

loan subsidies’ should include all public sector interventions aimed at easing the borrower’s debt servicing bur

den (e.g. subsidised interest rates, repayment subsidies).

Definition (2): ‘

disposable income’ = employee income + self-employment income (e.g. profits) – taxes.

5. Where the RRE loan markets for buy-to-let and owner occupied properties are monitored separately, the definition of

TI-O applies, subject to the following exceptions:

(a) for buy-to let loans:

— ‘L

’ includes only loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the buy-to-let loan.

(b) for owner occupied loans:

— ‘

L’ includes only loans or loan tranches, secured by the borrower on the immovable property at the moment

of origination, related to the owner occupied property.

— Where a borrower has bo

th owner occupied loans and buy-to-let loans, only buy-to-let rental income net of

the debt servicing costs on the buy-to-let loans can be used to support the payment of owner occupied loans.

In this case, the first-best definition of ‘

disposable income’ is:

‘

disposable income’ = employee income + self-employment income, e.g. profits + income from public pen

sions + income from private and occupational pensions + income from unemployment benefits + income

from social transfers other than unemployment benefits + regular private transfers, e.g. alimony) + (gross

rental income from real estate property – debt servicing costs on rental property) + income from financial

investments + income from private business or partnership + regular income from other sources + loan sub

sidies – taxes – health care/social security/medical insurance premiums + tax rebates.

4. The debt-to-income ratio at origination (DTI-O)

1. DTI-O is defined as:

DTIO =

2. For t

he purpose of the calculation, ‘D’ includes the total debt of the borrower, whether or not it is secured by real

estate, including all outstanding financial loans, i.e. g

ranted by the RRE loan provider and by other lenders, at the

moment of the RRE loan origination.

3. For the purpose of the calculation, ‘I’ has the same meaning as in Section 3(4).

5. The loan service-to-income ratio at origination (LSTI-O)

1. LSTI-O is defined as:

LSTIO =

2. For t

he purpose of the calculation, ‘LS’ is the annual debt servicing costs of the RRE loan, defined as ‘L’ in

Section 1(2) at the moment of loan origination.

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Official Journal of the European Union C 271/33

3. For the purposes of the calculation, ‘I’ has the same meaning as in Section 3(4).

4. Where the RRE loan markets for buy-to-let and owner occupied properties are monitored separately, the definition of

LSTI-O applies subject to the following exceptions:

(a) for buy-to-let loans:

— ‘

LS’ is the annual debt servicing costs related to the buy-to-let loan, at the moment of loan origination.

(b) for owner occupied loans:

— ‘

LS’ is the annual debt servicing costs related to the owner occupied loan, at the moment of loan origination.

— The relevant first-best definition of ‘

disposable income’ is:

‘

disposable income’ = employee income + self-employment income, e.g. profits + income from public pen

sions + income from private and occupational pensions + income from unemployment benefits + income

from social transfers other than unemployment benefits + regular private transfers, e.g. alimonies + (gross

rental income from real estate property – debt servicing costs on rental property + income from financial

investments) + income from private business or partnership + regular income from other sources + loan

subsidies – taxes – health care/social security/medical insurance premiums + tax rebates.

6. The debt service-to-income ratio at origination (DSTI-O)

1. DSTI-O is defined as:

DSTIO =

2. For t

he purpose of the calculation, ‘DS’ is the annual debt servicing costs of the total debt of the borrower, defined

as ‘D’ in Section 4(2) at the moment of loan origination.

3. For the purposes of the calculation, ‘

I’ has the same meaning as in Section 3(4).

4. DSTI-O should be considered as an optional indicator as not in all jurisdictions lenders may have access to the neces

sar

y information to calculate its numerator. However, in jurisdictions where lenders do have access to such informa

tion (e.g. through credit registers or tax records), macroprudential authorities are strongly encouraged to include also

this indicator in their risk monitoring framework.

7. The interest coverage ratio (ICR)

1. ICR is defined as:

ICR =

Grossa

nnualrentalincome

Annualinterestcosts

2. For the purposes of the calculation:

(a) ‘

gross annual rental income’ is the annual rental income accruing from buy-to-let housing, gross of any opera

tional expenses to maintain the property’s value and of taxes;

(b) ‘annual interest costs’ are the annual interest costs associated with the buy-to-let housing.

3. The ratio can refer to its value at loan origination (ICR-O) or its current value (ICR-C).

8. The loan-to-rent ratio at origination (LTR-O)

1. LTR-O is defined as:

LTRO =

Buy−to−le

tloan

NetannualrentalincomeorGrossannualrentalincome

2. For the purpose of the calculation:

(a) ‘

buy-to-let loan’ has the same meaning of ‘L’ in Section 1(2), but it is limited to RRE loans financing the buy-to-

let property;

C 271/34

Official Journal of the European Union 13.8.2019

(b) ‘

net annual rental income’ is the annual rental income accruing from the buy-to-let property net of any opera

tional expenses to maintain the property’s value but gross of any taxes;

gross annual rental income’ is the annual income accruing from renting out the buy-to-let property to tenants,

gross of any operational expenses to maintain the property’s value and of taxes.

The ne

t annual rental income should be used for the calculation of the LTR-O. If this information is not available,

gross annual rental income may be used as an alternative.’.

13.8.2019

Official Journal of the European Union C 271/35

ANNEX V

Annex V to Recommendation ESRB/2016/14 is replaced by the following:

‘ANNEX V

GUIDANCE ON DEFINITIONS AND INDICATORS

This Annex provides guidance on specific issues related to the definition of indicators and in particular on Annex III. Its

purpose

is not to provide detailed technical instructions for completing the Templates of Annex III covering all possible

cases. Moreover, the guidance should be interpreted as covering target definitions and target methods, and in some cases

divergences might be justified to accommodate for the specificities of markets or market segments.

1. Definitions of commercial real estate

There is currently no Union-wide definition of CRE that is sufficiently precise for macroprudential purposes.

(a) Regulation (EU) No 575/2013 def

ines RRE in Ar

ticle 4(1)(75) but does not provide a precise definition of CRE,

other than describing it as ‘offices or other commercial premises’ in Article 126. This Regulation also requires that

the property value should not depend on the credit quality of the borrower or the performance of the underlying

project as regards CRE.

(b) EBA provided a useful additional criterion: the dominant purposes of the property ‘should be linked to an economic

activity’

(

)

. While useful, this criterion is still not precise enough for macroprudential pur

poses.

(

) is another possible source for the defini

tion

of CRE. While the premise on which this Recommendation was originally issued justified the adoption of more

detailed definitions for financial stability purposes, recent developments in statistics have highlighted the need to

align more closely the definition of CRE with that in Regulation (EU) 2016/867, in order to facilitate the monitoring

activities and financial analyses of national macroprudential authorities and to allow for complete comparability

between countries.

(d) The G20 Data

Gaps initiative

(

) is a set of 20 recommendations on the enhancement of economics and financial

tatistics that was launched in order to improve the availability and comparability of economic and financial data

following the financial crisis of 2007-08. Recommendations II.17 and II.18 of the Second Phase of the G20 Data

Gaps Initiative (DGI-2)

(

)

highlight the requirement to improve the availability of both residential and commercial

real estate statistics. Following up on this initiative, in 2017, the Commission (Eurostat) published a report on ‘Com

mercial property price indicators: sources, methods and issues’

(

), which provides input on the source data and methodolo

gies

in relation to commercial property price indices, with the aim of better informing compilers and users of alter

native data sources, measurement methods, and the issues at stake.

(e) The Basel Committee on Banking Supervision's consultation document on revisions to the standardised approach for

credit

risk

(

) also defines CRE as the opposite of RRE. An RRE exposure is defined as an exposure secured by an

immo

vable property that has the nature of a dwelling and satisfies all applicable laws and regulations enabling the

property to be occupied for housing purposes, i.e. residential property. A CRE exposure is then defined as an expo

sure secured by any immovable property that is not a residential property.

(

)

See: EBA question ID 2014_1214 of 21 November 2014.

(

)

Regulation (EU) 2016/867 of the European Central Bank of 18 May 2016 on the collection of granular credit and credit risk data

(ECB/2016/13) (OJ L 144, 1.6.2016, p. 44).

(

)

Financial Stability Board and International Monetary Fund, The financial crisis and information gaps – report to the G-20 finance ministers

and central bank governors, 29 October 2009

(

)

inancial Stability Board and International Monetary Fund, Sixth Progress Report on the Implementation of the G-20 Data Gaps Initiative,

September 2015.

(

)

‘Commercial property price indicators: sources, methods and issues’

, Statistical Reports 2017 edition, Eurostat, Publications office of

the European Union, 2017.

(

)

Basel

Committee on Banking Supervision, Revisions to the Standardised Approach to credit risk – second consultative document,

December 2015.

C 271/36

Official Journal of the European Union 13.8.2019

In vie

w of the limitations of the definitions set out above, this Recommendation provides a working definition of CRE

specifically for macroprudential purposes. It defines CRE as any income-producing real estate, either existing or under

development, including rental housing; or real estate used by the owners of the property for conducting their business,

purpose or activity, either existing or under construction; that is not classified as RRE; and includes social housing.

Whether pr

operty under development should be considered as CRE can be debated. In this respect national practices

vary. However, the experience of a number of Member States during the recent financial crisis has demonstrated how

important it is for financial stability purposes to monitor investments in, and the financing of, this economic activity.

Income-producing r

eal estate is defined as all immovable properties with income generated by their rents or profits

from their sale. Therefore, buy-to-let housing and rental housing are both sub-categories of income-producing real

estate.

Buy-to-let housing ref

ers to any real estate directly owned by natural persons, with the primary aim of being let to

tenants. Buy-to-let housing is a border area between RRE and CRE. However, since this activity is typically undertaken

by part-time, non-professional landlords with a small property portfolio this can be interpreted for financial stability

purposes as belonging more to the RRE sector rather than to the CRE sector. For this reason buy-to-let housing is

classified as RRE and is therefore automatically excluded from the definition of CRE, even though it is still considered to

be income-producing real estate. Nevertheless, because of its distinct risk characteristics, national macroprudential

authorities are recommended to monitor developments in this sub-market under a separate br

eakdown, should this

activity represent a significant source of risks or a significant share of the stock or flows of total RRE lending. For this

reason, a breakdown of RRE loans has also been included to distinguish between buy-to-let loans and owner occupied

loans. Buy-to-let housing which is under construction is also deemed to be RRE. Similarly, dwellings which are being

constructed with the aim of being used for dwelling purposes by the owners are also deemed to be RRE property.

Rental housing ref

ers to real estate which is owned by legal entities (such as professional investors) with the aim of

being let to tenants. Such properties are also deemed to be income-producing real estate and as such are classified as

CRE. In addition, rental housing which is under construction is also classified as CRE, and in particular as income-pro

ducing real estate under development. Separate monitoring of the financing of rental housing may also be relevant for

financial stability purposes. For this reason, separate breakdowns have been included for these types of loans.

Income-producing real estate other than buy-to-let housing and rental housing is also included in the definition of CRE,

whe

ther existing or under construction. Examples of such other types of income-producing real estate include rented

office buildings and rented business premises. When under construction, such types of income-producing real estate are

considered to be income-producing real estate under development, which is classified as CRE.

Real est

ate used by the owners of the property for conducting their business, purpose or activity includes business

premises, as well as real estate of a more sui generis nature, such as churches, universities, museums, etc. Whether real

estate used by the owners of the property for conducting their business, purpose or activity should be classified as CRE

or as another type of real estate can be debated. In this respect, national practices vary, since the risks associated with

such real estate may, in some Member States, be considered to be different from the risks associated with CRE. Never

theless, while acknowledging that the risks may vary across Member States, it is also important to monitor such risks

for financial stability purposes. For this reason, real estate used by the owners of the property for conducting their

business, purpose or activity has been included in the definition of CRE. In addition, to cater for the specificities of the

financing of the different real estate markets across Member States, separate breakdowns are also included in order to

monitor risks connected to these types of financing separately. Real estate used by the owners of the property for con

ducting their business, purpose or activity should also be considered as CRE both during the construction phase and

upon completion.

Social housing is a c

omplex segment of the real estate market, as it may take different forms across and within Member

States. Given that social housing is not usually built, acquired or renovated by natural persons, it is not classified as

RRE, but as CRE. However, in some countries, in view of financial stability considerations, it is important to monitor

the risks stemming from this type of property under a separate br

eakdown. For this reason, separate breakdowns have

been added for these types of loans. In addition, social housing which is owned directly by the State is deemed to be

13.8.2019

Official Journal of the European Union C 271/37

owned for the purpose of conducting the government's purpose and is therefore also classified as CRE. Social housing

whic

h is still under construction is also classified as CRE, as it is considered as income-producing real estate under

development.

Any other properties under construction should be considered as either RRE or CRE in accordance with the general

definitions in points (4) and (38), respectively, of section 2(1)(1).

2. Data sources on commercial real estate

2.1. Indicators on the physical CRE market

CRE indicators on the physical market can be obtained through:

(a) public sources, e.g. national statistical agencies or land registers; or

(b) private sector data providers that cover a substantial part of the CRE market.

The ESRB Report on commercial real estate and financial stability in the EU provides an overview of available price

indices

and possible data sources

(

2.2. Indicat

ors on the financial system's CRE exposure

The exposures of market participants, at least those of the financial sector, can be collected from supervisory reporting.

Some data

are already collected by the ECB and EIOPA at national level. However, these are not very detailed. New

supervisory reporting templates for banks, i.e. Financial Reporting (FINREP) and Common Reporting (COREP), for insur

ers under Directive 2009/138/EC of the European Parliament and of the Council

(

) and for investment funds under

Directiv

e 2011/61/EU of the European Parliament and of the Council

(

) can provide more granular insight into financial

institutions'

exposures to CRE.

The classifications provided in the statistical classification of economic activities in the European Community (NACE

v 2.0) can be useful to proxy financial institutions' exposures to CRE, as they are widely agreed upon by the Union

institutions and used in regulatory reporting templates for banks and insurance undertakings. Two sections appear to be

relevant in that respect:

(a) Section F: construction, excluding civil engineering; and

(b) Section L: real estate activities, excluding real estate agencies.

The main dra

wback of using NACE classifications is that they target economic sectors and not loans. For instance,

a loan extended to a property company to buy a car fleet will be reported under Section L, even if it is not a CRE loan.

2.3. Use of private sector data

Where national macropr

udential authorities use data from a private sector data provider in order to compile the CRE

indicators, they are expected to identify the differences in scope and definitions compared to those requested in this

Recommendation. They should also be able to provide details on the underlying methodology used by the provider and

the sample coverage. Data from a private sector provider should be representative of the overall market and the relevant

breakdowns set out in Recommendation D:

(a) property type;

(b) property location;

(d) lender type and nationality.

(

)

ESRB, Report on Commercial Real Estate and Financial Stability in the EU, December 2015, in particular Anne

x II, Section 2.2.

(

)

Directiv

e 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the

business

of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).

(

)

Directiv

e 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and

amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174,

1.7.2011, p. 1).

C 271/38

Official Journal of the European Union 13.8.2019

3. Relevant breakdowns of the indicators

With respect to the relevant breakdowns set out in Recommendation D, national macroprudential authorities should be

able

to provide an assessment of the relevance of such breakdowns for their CRE market when they use them for moni

toring purposes, taking also into account the principle of proportionality.

‘

Property type’ refers to the primary use of a commercial property. For CRE indicators, this breakdown should include

the following categories:

(a) residential, e.g. multi-household premises;

(b) retail, e.g. hotels, restaurants, shopping malls;

roperty primarily used as professional or business offices;

(d) industrial, e.g. property used for the purposes of production, distribution and logistics;

(e) other types of commercial property.

If a property has a mixed use, it should be considered as dif

ferent properties (based for example on the surface areas

dedicated to each use) whenever it is feasible to make such breakdown; otherwise, the property can be classified accord

ing to its dominant use.

‘

Property location’ refers to the geographical breakdown (e.g. by regions) or to real estate sub-markets, which shall also

include prime and non-prime locations. A prime location is generally considered the best location in a particular mar

ket, which is also reflected in the rental yield (typically the lowest in the market). For office buildings this could be

a central location in a major city. For retail buildings this may refer to a city centre with many pedestrians or

a centrally-placed shopping centre. For logistics buildings this may refer to a location where the necessary infrastructure

and services are in place, which has excellent access to transport networks.

‘

Property territory’ refers to the territory where the property that serves as collateral for a loan provided within the

domestic financial system of any Member State is located. This breakdown should include the following sub-categories:

(a) domestic territory;

(b) foreign territory broken down into individual countries which the national macroprudential authorities of the Mem

ber

State deem important for financial stability purposes.

‘Investor type’ refers to broad investor categories, such as:

(a) banks;

(b) insurance companies;

(d) investment funds;

(e) property companies;

(f) others.

It is pr

obable that only data on the recorded borrower or investor will be available. However, national macroprudential

authorities should be aware that the recorded borrower or investor can be different from the ultimate borrower or

investor, which is where the final risk lies. Hence, authorities are encouraged to monitor also information on the ulti

mate borrower or investor whenever possible, e.g. t

hrough information gathered from market participants, in order to

have a better understanding of the behaviour of market participants and risks.

‘Lender type’ refers to broad lender categories, such as:

(a) banks, including ‘

bad banks’;

(b) insurance companies;

National macr

oprudential authorities may need to adjust the list of investor and lender types in order to reflect the

characteristics of the local CRE sector.

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Official Journal of the European Union C 271/39

‘Nationality’

refers to the country of incorporation of the market participant. The nationality of investors and lenders

should be broken down into at least the three following geographical categories:

(a) domestic;

(b) rest of the European Economic Area;

National macroprudential authorities should be aware that the recorded investor's or lender's nationality can be different

the nationality of the ultimate investor or lender where the final risk lies. Hence, authorities are encouraged to also

monitor information on the ultimate lender's or investor's nationality, e.g. through information gathered from market

participants.

The breakdowns set out in Recommendation D(2) are to be considered as the recommended minimum. However,

national

macroprudential authorities are not prevented from making use of any additional breakdowns which, based on

their own definitions and metrics, and taking into consideration the specificities of their national CRE markets, they may

deem necessary for financial stability purposes. With respect to these additional breakdowns, national macroprudential

authorities may choose to monitor and categorise these market segments as they deem appropriate for their national

CRE markets. Moreover, where certain sub-categories of CRE or RRE are not deemed to be of relevance for financial

stability purposes, national macroprudential authorities may choose not to monitor the risks stemming from such types

of property and/or from their financing. In such cases, inaction by national macroprudential authorities will be deemed

to be justified provided that sufficient explanations are provided.

4. Methods for calculating the physical market indicators

CRE price refers to a

constant quality numéraire, i.e. the market value of property stripped of quality changes such as

depreciation (and obsolescence) or appreciation (e.g. renovation) by means of quality adjustment.

Guidance from work initiated by Eurostat advises that pricing data should be collected from actual transactions. Where

hese are not available and/or fully representative they may be approximated by appraisal or valuation data as long as

these data reflect the current market price, and not any sustainable price measurement approach.

5. Assessment of financial system exposures to commercial real estate

The financial system's exposure to CRE consists of both lending, often by banks and sometimes also insurance compa

nies,

and investments, often made by insurance companies, pension funds and investment funds. Investments can refer

to both direct CRE holdings, e.g. possessing legal title to a CRE property, and indirect CRE holdings, e.g. through securi

ties and investment funds. In case a lender or investor uses a special purpose vehicle (SPV) as a dedicated CRE financing

technique, such lending or investments should be considered as direct CRE lending or holdings (‘look-through’

approach).

When assessing these exposures for the system, as a whole, national macroprudential authorities should be aware of the

risk of double-counting. Investors can invest both directly and indirectly in CRE. For example, pension funds and insur

ance companies often invest indirectly in CRE.

It may also be more difficult to capture exposures of foreign market participants, which may make up a significant part

of the

market

(

). Since these market participants are important to the functioning of the CRE market, monitoring of

heir activities is advisable.

Since losses from

CRE activities are often concentrated in CRE lending by banks, national macroprudential authorities

are encouraged to pay particular attention to this activity in their monitoring.

6. Methods for calculating LTV

Annex IV se

ts out the methods for calculating LTV-O and LTV-C. However, there are a

number of specificities to take

into account when these ratios are calculated for CRE.

(

)

ESRB, ‘Report on

Commercial Real Estate and Financial Stability in the EU’, December 2015, in particular Section 2.3 and Box 1.

C 271/40

Official Journal of the European Union 13.8.2019

In t

he case of a syndicated loan, the LTV-O should be calculated as the initial amount of all loans granted to the bor

rower relative to the value of the property at origination. Where several properties are concerned, the LTV-O should be

calculated as the ratio of the initial loan(s) amount to the total value of the properties concerned.

As the number of properties is much smaller and properties are more heterogeneous in the CRE sector than in the RRE

sector, it is more appropriate to calculate the LTV-C on the basis of a value assessment of the individual properties

rather than using a value or price index.

Finally, national macroprudential authorities need to monitor the distribution of LTV with a particular focus on the

riskiest loans, i.e. those with the highest LTV, as losses often result from such tail risk.

7. Methods for calculating the interest coverage ratio (ICR) and debt service coverage ratio (DSCR)

The int

erest coverage ratio (ICR) and the debt service coverage ratio (DSCR) refer to rental income generated by an

income-producing property or set of properties, or to cashflow generated by the conduct of the business, purpose or

activity of the owners of a property or set of properties, net of taxes and operating expenses that the borrower must

incur in order to maintain the property's value and – in the case of cashflow – adjusted for other costs and benefits

directly connected with the use of the property.

ICR is defined as:

ICR =

Neta

nnualrentalincome

Annualinterestcosts

For the purposes of calculating ICR:

(a) ‘net annual income’ includes t

he annual rental income accruing from renting property to tenants or the annual

cashflow generated by the conduct of the business, purpose or activity of the owners of the property, net of taxes

and any operational expenses to maintain the property's value and – in the case of cashflow – adjusted for other

costs and benefits directly connected with the use of the property.

(b) ‘

annual interest costs’ are annual interest costs associated with the loan secured by the CRE property or set of

properties.

The ICR's purpose is to measure the extent to which the income generated by a property is sufficient to pay for the

interest expenses incurred by a borrower to purchase that property. ICR should therefore be analysed at property level.

DSCR is defined as:

DSCR =

Neta

nnualrentalincome

Annualdebtservice

For the purpose of calculating DSCR:

(a) ‘net annual income’ is t

he annual rental income accruing from renting property to tenants or the annual cashflow

generated by the conduct of the business, purpose or activity of the owners of the property, net of any taxes and

operational expenses to maintain the property's value and – in the case of cashflow – adjusted for other costs and

benefits directly connected with the use of the property.

(b) ‘

annual debt service’ is the annual debt service associated with the loan secured by the CRE property or set of

properties.

The DSCR's purpose is to assess the weight of the overall debt burden that a property generates for a borrower. Hence,

the denominator includes not only interest expenses, but also loan amortisation, i.e. pr

incipal repayments. The main

issue for such an indicator is whether it should be calculated at property level or at borrower level. CRE financing is

typically provided on a non-recourse basis, i.e. the lender is only entitled to repayment from the income of the property

and not from the borrower's other income or assets. Therefore it is more realistic and appropriate to calculate the DSCR

at property level. Furthermore, focusing on a bor

rower's overall income would raise important consolidation issues

which would make it more difficult to define a metric that is comparable across Member States.

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Official Journal of the European Union C 271/41

8. Additional indicators relevant for income-producing property under development

For income-producing property under development, instead of the LTV at origination, national macroprudential author

ities may

instead monitor the loan-to-cost ratio (LTC). The LTC represents the initial amount of all loans granted in

relation to the costs associated with the construction of the property until completion.

In addition, national macropr

udential authorities should focus their monitoring on the riskiest developments, e.g. those

that experience very low pre-let or pre-sale ratios. For any building still being constructed, the pre-let ratio equals the

surface area that has already been let by the property developer at the time the loan is issued relative to the total surface

area that will be available once the property has been completed; similarly, the pre-sale ratio equals the surface area that

has already been sold by the property developer at the time the loan is issued relative to the total surface area that will

be available once the property has been completed.

9. Annual publication of commercial real estate exposures by the ESAs

Drawing on infor

mation available from regulatory reporting templates, the ESAs are recommended to disclose at least

annually aggregated information on the exposures to the different national CRE markets in the Union for the entities

within the scope of their supervision and on solo basis. Such public disclosure is expected to enhance the knowledge of

national macroprudential authorities on the activity of entities from other Member States on their domestic CRE market.

In case there are any concerns about the scope or quality of the published data, such publication should be accompa

nied with the appropriate comments.

As a general rule, the ESAs should make it possible for any national macroprudential authority in the Union to assess

he exposures of all Union financial institutions to its national market. This implies that data collected for all financial

institutions in the Union should be aggregated at country level.

In disclosing such

aggregated information, the ESAs should make use of information in regulatory reporting templates

that provide a geographical breakdown

of credit exposures and/or (direct and indirect) investments. When reporting

templates provide a breakdown by NACE codes

(

), CRE could be referred to as both the ‘

F’ and ‘L’ Sections, although

strictly speaking some sub-categories would need to be excluded following the CRE definition adopted in this Recom

mendation.

(

)

Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical clas

sif

ication

of economic activities NACE Revision 2 and amending Council Regulation (EEC) No 3037/90 as well as certain EC Regula

tions on specific statistical domains (OJ L 393, 30.12.2006, p. 1).’.

C 271/42

Official Journal of the European Union 13.8.2019