Sumary of Central Bank to impose new rules on overseas property funds:
- In its latest financial stability review, the regulator said property funds now held 40 per cent of commercial residential property assets in the Republic, worth an estimated €23 billion, marking a significant shift from the Celtic Tiger era when domestic investors dominated the sector.
- Most of the investment has come since 2014 and has benefitted from the use of tax efficient investment vehicles.
- While the arrival of overseas investment “represents a beneficial diversification”, the Central Bank said there was a cohort of property funds that had high levels of leverage “and, to a lesser extent, liquidity mismatches”.
- “Absent of policy interventions, these vulnerabilities have the potential to grow or become more widespread in the future,” it said.
- “This type of selling behaviour has the potential to amplify adverse shocks to the commercial real estate market and the wider economy,” it said.
- The Central Bank said it was currently consulting on new macroprudential policy measures aimed at safeguarding the resilience of the Irish property fund sector, so that it can better absorb – rather than amplify – adverse shocks.
- The Central Bank warned that the Government’s scheme would operate by shifting the demand for house purchases “and, so – in a supply-constrained market – has the potential to increase pricing pressures.
- ” Mortgage lending rules As part of the its review, the regulator also decided to leave its mortgage lending rules unchanged for another year, noting the benefit of the measures were evident in payment break take-up rates during the pandemic.