ECB warns about vulnerable property market in euro zone

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The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

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FRANKFURT, Feb 16 (Reuters) - The property market is a "key vulnerability" for euro zone banks as the rise of remote working since the pandemic dents demand for offices and households take on more debt to buy expensive homes, the European Central Bank said on Wednesday.

Central bankers have been ringing alarm bells about the euro zone's booming property market that has a decade of ultra-low interest rates and light-touch prudential regulation have helped create.

In the latest warning, the ECB's supervisors said commercial and residential real estate had become a cause for concern, and they planned to take a closer look at banks' exposure to it.

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"ECB Banking Supervision identified banks’ exposures towards the commercial and residential real estate sectors as a key vulnerability," the ECB said in its newsletter.

It announced plans for a "targeted review" of a sample of banks with material exposure to commercial and residential real estate.

"The commercial real estate (CRE) sector is considered vulnerable to the impact of the pandemic, while medium-term risks of price corrections continue to grow in the residential real estate (RRE) sector, with signs of a potential overvaluation in housing prices and elevated household indebtedness," the ECB said.

Banks’ exposures to commercial real estate account for around 8% of supervised banks' loans and over 20% of their corporate loans, the ECB said.

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Reporting By Francesco Canepa; Editing by Christina Fincher

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