EBA · 2023_6685 Rejected question

Residential property

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
4, para. 1
Topic
Credit risk
Submitted by
Individual
Submitted
2023-01-09
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Question

Artcile 4 (75) presents the definitions for Residential property - “residential property” means a residence which is occupied by the owner or the lessee of the residence, including the right to inhabit an apartment in housing cooperatives located in Sweden; Question ID: 2015_2304 has a aswwer:  "For the avoidance of doubt, the exposure has to be secured by a mortgage on residential property which “is or shall be occupied or let by the owner”. This excludes situations where residential property “may” be built in the future (i.e. mortgages on land) but includes mortgages on building sites on which residential property will be built for the future owner of the property, or on residential property under construction, provided in both cases that there is certainty that the owner will occupy or let the property. In this sense, the 35% risk weight cannot be applied to exposures towards real estate developers. This treatment does only apply to exposures fully and completely secured by mortgages on residential property, and not where units were to be exploited commercially. " If real estate company owns houses/apartments/flats and this company leases them to natural persons (for living) does these houses/apartments are consideres as residential properties or commercial properties in Your view? Clear Yes and No answer is needed.

Background

Is is not very clear how this Residential property definitions should be applied for the cases where houses and apartments are for natural persons to live in but they are owned by a legal entity. If legal entity takes loan and secures loan with the mortgages on those houses/apartment that entity leases to natural person, should those houses/apartments be treated as residential real estate collaterals even though the entity owns these properties for commercial purposes (income-producing purposes)? These apartments are occupied by the lessee (natural person) or will be occupied by the lessee (natural person) - so it does fill the condition mentioned in the definition in the Article 4(75).
No answer published yet.

Original source: European Banking Authority, Q&A ID 2023_6685

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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