The EBA Consults On Draft Guidelines On Acquisition, Development And Construction Exposures To Residential Property Under The Standardised Approach Of Credit Risk

• The EBA plays an important role in the implementation of the EU Banking Package.
• These draft Guidelines are part of the first phase of the EBA roadmap for implementing the EU Banking Package.
• These draft guidelines will contribute to a more a robust regulatory framework, efficient supervision, and enhanced risk control by credit institutions.

The European Banking Authority (EBA) today launched a public consultation on its draft Guidelines (GLs) under the Capital Requirements Regulation (CRR3) regarding acquisition, development and construction (ADC) exposures to residential property. These Guidelines specify the credit risk-mitigating conditions that allow institutions to assign a risk weight of 100% instead of 150% for ADC exposures to residential property. Furthermore, the Guidelines also address the specificities of institutions’ lending to public housing or not-for profit entities. The consultation runs until 19 August 2024.

The Guidelines specify further the two conditions introduced in the CRR3 for ADC exposures to residential property to benefit from a risk weight of 100% instead of 150%:

• 50% of pre-sale and pre-lease contracts with respectively a cash deposit equal to or higher than 10% of the sale price and equal to or higher than 3 times the monthly lease rate, or sale and lease contracts.
• The obligor has substantial equity at risk, represented as an appropriate amount of obligor-contributed equity representing 35% of the residential property value upon completion.

Against this background, the draft Guidelines will define the metrics and thresholds associated with the two conditions mentioned above. The EBA will leverage further on an ad hoc data collection conducted as part of the Basel 3 monitoring QIS to calibrate the threshold.

Additionally, the Guidelines establish a specific framework for ADC projects related to public housing or not-for-profit entities across the European Union, which in any case is optional compared to the general framework at the discretion of credit-granting institutions.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 19 August 2024.

The public hearing on these draft GLs will take place via conference call on 20 June 2024 from 9.30 to 11.00 CEST. The EBA invites interested stakeholders to register using this link by 18 June 2024 at 16:00 CET.

Legal basis and background

The draft Guidelines have been developed according to Article 126a(3) of Regulation (EU) No 575/2013 (CRR), as amended by the CRR3.