The EU warns of the risk of a real estate bubble in seven countries

Real Estate

The ESRB has sent some recommendations to Germany and Austria, where it considers that action should be taken to remedy the situation. It has also issued warnings

The European Systemic Risk Board (ESRB) has sent some recommendations to Germany and Austria to remedy problems due to bubbles in their real estate markets.

The ESRB, a body that was set up in 2010 after the financial crisis to ensure that financial stability is safeguarded, has published a report on Friday alerting several countries to bubbles in their residential real estate markets.

In addition to the recommendations to these two countries, the ESRB has sent warnings to Bulgaria, Croatia, Hungary, Liechtenstein and Slovakia. The warnings and recommendations are received by the relevant ministers of the countries. It issues warnings if it observes problems or trends that may endanger financial stability and goes a step further by giving recommendations that indicate that something needs to be done to remedy the situation.

These remedies are, for example, fiscal measures, legally limiting household borrowing and bank exposures and forcing banks to hold more capital for risky exposures with capital buffers. Germany, with a price overvaluation of 25%, and Austria, with 45%, had already received warnings in 2019 and 2016, respectively, and as they have not done enough to remedy the situation, the ESRB has now sent them the recommendations.

As it is not possible to set legal limits on the loan-to-value ratio in Germany, because the legal system does not allow it, the ESRB recommends activating a non-binding limit.