(Via FinancialTimes)
The European Central Bank has called for a clampdown on commercial property funds to tackle the risk that a downturn in the €1tn sector could trigger a liquidity crisis if investors rushed to withdraw their money.
The ECB’s proposals reflect concern among regulators and investors that the recent turmoil in the banking industry could exacerbate strains in the commercial property market and push the sector closer to crisis.
Funds that invest in illiquid property assets and allow investors to pull out their money at short notice are exposed to a “liquidity mismatch” that could force them into “fire sales”, ECB officials warned in a macroprudential bulletin on Monday.
“Policies should be developed to address the structural vulnerabilities” of such open-ended property funds, the officials said, “given the risks they pose to commercial real estate markets and wider financial stability”.