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The impending wave of bankruptcies in the real estate industry and its impact on the banking sector - a financial expert warns of systemically important losses.
According to a report by www.n-tv.de, the real estate industry may be facing a serious crisis as rising construction costs and skyrocketing interest rates lead to growing losses. The bankruptcy of some project developers could be just the beginning of a larger wave of bankruptcies that could even affect the banking sector. The European Central Bank (ECB) is warning of “systemically important losses in the banking sector” as the debt of the largest real estate companies is close to or above pre-global financial crisis levels and the interest rate turnaround makes it more difficult to refinance this debt. The impact of these developments on the market could be massive. Loans for commercial real estate have increased in price by an average of 2.6 percent, and...
The impending wave of bankruptcies in the real estate industry and its impact on the banking sector - a financial expert warns of systemically important losses.
According to a report by www.n-tv.de,
The real estate industry may be facing a serious crisis as rising construction costs and skyrocketing interest rates lead to mounting losses. The bankruptcy of some project developers could be just the beginning of a larger wave of bankruptcies that could even affect the banking sector. The European Central Bank (ECB) is warning of “systemically important losses in the banking sector” as the debt of the largest real estate companies is close to or above pre-global financial crisis levels and the interest rate turnaround makes it more difficult to refinance this debt.
The impact of these developments on the market could be massive. Loans for commercial real estate have increased in price by an average of 2.6 percent and the number of sales has halved. In addition, rents could fall due to the trend towards home offices. The share prices of real estate companies have fallen massively and the ECB is warning that many companies could soon find themselves in financial difficulties. This could also have an impact on the banking sector, as around ten percent of all bank loans in the Eurozone are in the commercial real estate sector.
The situation has the potential to deepen the crisis, increasing the risk of systemically important losses in the banking system. Other parts of the financial system that rely on commercial real estate could also suffer severe losses. In addition, the residential real estate market, which accounts for 30 percent of all bank loans, could also come under pressure from the ECB's interest rate explosion, especially if the labor market weakens.
The financial industry must therefore prepare for potentially turbulent times, as the housing crisis has the potential to have far-reaching effects on the entire financial market.
Read the source article at www.n-tv.de