Austria’s Hot Property Market Lending May Need Cooling, IMF Says

(Bloomberg) --

Austrian banks remain too loose with mortgage lending amid a continued rise in property prices -- especially in Vienna -- and authorities should consider tougher limits if the trend persists, the International Monetary Fund said.

Risk levels on new mortgages are rising, and a “considerable fraction” doesn't meet supervisors' guidelines, the IMF said in a report on Tuesday. Housing loans doubled as a share of total lending to 16% in the decade since the financial crisis, it said.

“We're not saying you have a housing bubble right now, but we're saying take action now so you don't have a housing bubble in the future,” IMF mission chief Jeffrey Franks told journalists in Vienna. On top of measures to better control the banking sector, authorities should also promote home construction to address demand, he said.

Issues of concern raised in the IMF's report on Austria's financial industry include how much equity borrowers must provide to secure a loan and how much of their income can be earmarked for debt service, according to the IMF.

While Austria's central bank warned about rising property prices, it found that they were fueled by the lack of other investment options rather than an issue with lending. Still, authorities took a first step toward possible restrictions on mortgages in 2018 and could step up actions with binding measures, which may restrict domestic loan growth of lenders including Erste Group Bank AG and UniCredit Bank Austria AG.

The central bank is working with European lenders to fill data gaps in the commercial real estate sector, where pricing and lending remains less transparent, Vice Governor Gottfried Haber said at the same event. The strong growth of loans to companies involved in real estate also warrants “close monitoring,” according to the IMF.

Other highlights of the IMF's report include:

• Banking system's capitalization has improved, sector is resilient and profits are good
• Main risks for Austrian banks include their exposure to eastern Europe, complex ownership structures due to the large role of cooperative banks such as Raiffeisen group, savings banks
• IMF recommends limiting the finance ministry's role on regulatory actions to promote political independence “in situations when quantifying the benefits of macroprudential policy actions is difficult”

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Ross Larsen, Patrick Henry

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