In order to avoid a decorrelation between the value lent and the real value of the real estate assets as collateral, the EBA will require banks from 2022 to carry out an appraisal before'grant a credit.
CThis amendment will bring about significant changes in the way credit granting is managed. Although estimates were already relatively common, the entry into force of Article 208 introduces more constraints, particularly on the management of data linked to these assessments.
Furthermore, paragraph 1 states that only goods complying with certaines requirements may be considered as valid guarantees. The issues related to the compliance to these new directives are therefore major.
What will change for banks in 2022?
We are mainly interested in paragraph 3:
[…] following requirements on monitoring of property values and on property valuation shall be met
Regular value monitoring
Institutions will have to carry out regular checks on the value of real estate. That is, at least once a year for buildings commercial and once every three years for immpeople residential.
Institutions will have to proceed to dmore controls frequent if the market is subject to significant changes (contextual: Covid, regulatory: PEB regulations, etc.) which could affect the value of real estate assets.
Alert for re-evaluation
L’évaluation du bien immobilier devra être réexaminée si les informations que l’institution détient indique que la valeur de l’actif peut avoir diminué de manière significative par rapport aux prix du marché. Ce serait par exemple le cas de biens avec un PEB G dans un contexte réglementaire où les mauvaises performances énergétiques seraient fiscalement « sanctionnés » par exemple. On assisterait alors à un découplage des biens PEB > G et des biens PEB < G, nécessitant une réévaluation du portefeuille de biens impactés.
Documentation and historization of evaluations
In order to easily identify whether a reassessment is necessary, it is imperative to haveer of a structured database, allowing the characteristics of a property and its previous valuations to be found. This level of data structuring is practically impossible to obtain by soliciting external experts, whose data encoding will necessarily vary from one expert to another.
Even though the assessment may–be carried out by an expert, the constraints in terms of frequency of evaluation and monitoring are such that the use of automatic evaluation methods becomes essential. These methods generate a standardization of the evaluation process that allows for the digital archiving of all this data. This obviously makes it possible to better monitor regulatory developments and quickly identify a group of assets that should be revalued.
The use of a physical expert, byt logistical complexity and cost, will have to be reserved to cases for which the automatic algorithm is not suitable.
What strategy should be adopted to comply with the new EBA regulations?
IT companies specializing in real estate, such as SmartBlockare best placed to support banks in this process. In addition to their knowledge of valuation techniques and the real estate sector, they master the know-how required to set up the IT architecture needed to monitor and periodically value a real estate portfolio.