In general, the main vulnerabilities highlighted in the ESRB report are medium-term in nature and relate to the rapid growth of house prices and possible overvaluation of residential property, the level and dynamics of household debt, the growth of housing credit and signs of loosening lending standards.

For Austria, the ESRB recommends that borrower-based measures should take a legally binding form to ensure greater effectiveness. This recommendation has been taken into consideration in the most recent decision of the Financial Market Stability Board (FMSG). Therein, also the FMSG proposed to introduce borrower based measures like a maximum debt to value ratio and a debt service to income ratio for the Austrian residential real estate sector.

In addition, the ESRB proposed that increasing the resilience of the banking sector could help to address the risks that have already accumulated. If resulting vulnerabilities increase further it recommends an increase in the countercyclical capital buffer (CCyB) or the activation of a sectoral systemic risk buffer (SyRB). These measures have already been implemented in various European jurisdictions like for example CZ, DE or CH but have not yet been introduced in Austria.

In a similar direction, the ECB has identified the exposure towards the real estate sector as a key vulnerability for 2022-24. While commercial real estate is vulnerable to the impact of the pandemic, residential real estate is subject to potential overvaluation and elevated household indebtedness. Overall, banks’ exposure toward CRE is over 20% of their total corporate loans (~38% for AT). Therefore, the ECB sees it as crucial that banks have robust credit risk management frameworks to identify and classify distressed borrowers at an early stage. Regarding RRE loans the ECB has seen an increase of total loans and advances towards households secured by residential real estate of 3.6% within one year (increase of overall loans by only 1.7%).

To circumvent these risks, supervisors are taking various actions like for example looking at a sample of RRE portfolios or reviewing lending standards and creditworthiness assessments as outline in the EBA GLs on loan origination. Both the Austrian and European supervisors have also taken up tackling real estate risks via micro- and macroprudential measures as one of their priorities for 2022.