In order to avoid a de-correlation between the value lent and the real value of the real estate assets used as collateral, the EBA will require banks to carry out an appraisal as of 2022 before issuing a loan.to grant a credit.
Chis amendment will bring about significant changes in the way credit granting is managed. While estimates were already relatively common, the implementation of Section 208 introduces more constraints, particularly on the management of data related to these estimates.
In addition, paragraph 1 states that only goods that comply with cersome requirements can be considered as valid guarantees. The issues related to 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 checks
The institutions will have to carry out regular checks on the value of the real estate. This means at least once a year for buildings and once every three years for commercial immFurniture residential.
Institutions will need to dmore controls frequent if the market is subject to significant changes (contextual: Covid, regulatory: PEB regulations, etc.) that could affect the value of real estate assets.
Reassessment alert
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.
Documenting and archiving evaluations
In order to easily identify if a reassessment is needed, it is imperative to haveer a structured database, allowing to find the characteristics of a property and its previous evaluations. This level of data structuring is practically impossible to obtain by soliciting external experts, whose data encoding will inevitably vary from one expert to another.
While the evaluation may-be carried out by an expert, the constraints in terms of evaluation frequency and monitoring are such that the use of automatic evaluation methods becomes indispensable. These methods generate a standardization of the evaluation process which allows the historization of all these data in a digital way. This obviously makes it possible to better follow regulatory changes and to quickly identify a group of properties that should be revalued.
The use of a physical expert, because oft logistical complexity and cost, will have to be reserved cases for which the automatic algorithm is not adapted.
What strategy should be adopted to comply with the new EBA regulations?
IT companies specializing in real estate, such as SmartBlock, are ideally 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.