The housing and commercial property markets are demonstrating signs of being overvalued in Europe, according to the European Union’s financial watchdog.
Investors are increasingly chasing alternative riskier assets such as property in the hunt for more lucrative returns, the European Systemic Risk Board said in its annual report.
“High investor demand and the search for higher yields, which have been a major source of the commercial real estate price increase, particularly in prime markets, have potentially made investors vulnerable to a repricing of risk premia,” it warned.
It said that most countries it analysed with available commercial real estate data showed price increases and signs of overvaluation.
“Many EU countries have continued to see significant commercial real estate price increases over recent years, and signs of overvaluation in prime commercial real estate markets have been present in several.”
The report added that the same was evident in the housing market.
“In many EU countries, the positive house price dynamics have been coupled with signs of overvaluation, which could generate losses for banks and other financial intermediaries involved in real estate financing should the real estate market experience a significant downturn.”
The concerns come as the European Central Bank is readying a fresh stimulus package for the eurozone economy if it continues to deteriorate.
Last week, Mario Draghi, president of the ECB, informed politicians in the single currency bloc that the growth outlook was “getting worse and worse” and fiscal measures would be “of the essence” if the economic issues got more serious.
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