17.3.2022 |
EN |
Official Journal of the European Union |
C 122/25 |
WARNING OF THE EUROPEAN SYSTEMIC RISK BOARD
of 2 December 2021
on medium-term vulnerabilities in the residential real estate sector of Hungary
(ESRB/2021/15)
(2022/C 122/06)
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 macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Article 3(2)(c) and Articles 16 and 18 thereof,
Having regard 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 (2), and in particular Article 18 thereof,
Whereas:
(1) |
Housing is a key sector of the real economy and represents a major part of household wealth and bank lending. Residential real estate (RRE) properties make up a large component of households’ asset holdings and loans for housing are often a large part of banks’ balance sheets. Furthermore, housing construction is typically an important component of the real economy, as a source of employment, investment and growth. |
(2) |
Past financial crises and experience in many countries have demonstrated that unsustainable development in real estate markets may have severe repercussions for the stability of the financial system and the economy as a whole in any given country, which may also lead to negative cross-border spill-overs. The effects on financial stability may be both direct and indirect. Direct effects consist of credit losses from mortgage portfolios due to adverse economic and financial conditions and simultaneous negative developments in the RRE market. Indirect effects relate to adjustments in household consumption, with further consequences for the real economy and for financial stability. |
(3) |
Real estate markets are prone to cyclical developments. Excessive risk-taking, excessive leverage and misaligned incentives during the upturn of the real estate cycle may lead to severe negative implications for both financial stability and the real economy. Given the relevance of RRE for financial and macroeconomic stability, seeking to prevent the build-up of vulnerabilities in RRE markets by the use of macroprudential policy is especially important, in addition to its use as a means of mitigating systemic risk. |
(4) |
While cyclical factors play an important role in fuelling the vulnerabilities identified in RRE markets in European Economic Area (EEA) countries, structural factors have also driven these vulnerabilities. These structural factors can include a lack of housing supply, which has exerted upward pressure on house prices and debt for households that buy their own property, and other public policies that may act as an incentive for households to overborrow. Given that these factors go beyond macroprudential policy, measures originating from other policy areas can complement and support the current macroprudential measures in addressing the vulnerabilities present in RRE markets in individual countries efficiently and effectively, without generating excessive costs for the real economy and the financial system. |
(5) |
The outbreak of the COVID-19 pandemic in 2020 and the related crisis have not led to a cyclical decline in housing markets. Rather, following a period of gradual growth, and amidst the low interest rate environment, real house price and lending growth have accelerated further in several countries, largely outpacing the growth in household income. In order to mitigate the impact of the pandemic and the resulting economic uncertainty, various measures and policies, such as moratoria and public guarantees, have been implemented. In this broad policy context, previously scheduled macroprudential measures have been temporarily relaxed or their activation delayed in some countries. The currently observed improvement in the economic situation allows for an adjustment of macroprudential policy in those countries in which RRE-related vulnerabilities have continued to build up. |
(6) |
The European Systemic Risk Board (ESRB) has recently concluded a systematic and forward-looking EEA-wide assessment of vulnerabilities relating to RRE. |
(7) |
As regards Hungary, this recent assessment has revealed that:
|
(8) |
When activating any measures to address the identified vulnerabilities, their calibration and phasing-in should take into account Hungary’s position in the economic and financial cycles, and any potential implications as regards the associated costs and benefits, |
HAS ADOPTED THIS WARNING:
The ESRB has identified medium-term vulnerabilities in the residential real estate sector in Hungary as a source of systemic risk to financial stability, which may have the potential for serious negative consequences for the real economy. From a macroprudential perspective, the ESRB considers the main vulnerabilities to be the increasing risk of house price overvaluation coupled with the rapid growth in the provision of mortgage and household credit together with pockets of vulnerabilities related to borrowers with high debt service.
Done at Frankfurt am Main, 2 December 2021.
The Head of the ESRB Secretariat,
on behalf of the General Board of the ESRB
Francesco MAZZAFERRO
(1) OJ L 331, 15.12.2010, p. 1.
(3) The house purchase subsidy and the prenatal baby support loans, which is an interest-free loan without limits on the purpose.
(4) The preferential value added tax for new construction was reintroduced in January 2021 and provides benefits to dwellings finished by 2026 (with building permits issued by 2022).
(5) The additional government subsidy programme provides fiscal support to households already involved in the house purchase subsidy programme.