Logic dictates that when there is high risk of a collapse of property prices, bank lending ratio of loan to value should be strictly controlled. When a market has collapsed, lending should be more relaxed as the chances of further substantial fall in value is much less. However, international banking doesn’t appear to see it this way (unless they know more about an imminent further collapse – perish the thought!). Here is an ‘edict’ just issued.
- Basel III regulations governing high volatility commercial real estate (HVCRE) went into effect. The HVCRE rules require lenders to assign a higher risk weighting to loans for the acquisition, development or construction (ADC) of commercial real estate. – Thanks for the info to Steven M. Regan of Reed Smith LLP
There has been talk of the weight of money available on the international markets creating another bubble with a crash predicted by 2020, so let’s be generous and say they are ahead of the game. Otherwise, their action is just going to slow recovery and shows muddled ‘close the stable door’ thinking.