Reserve Bank says commercial property carries $30b of debt and is riskier for banks than residential lending

Short headline: 
RBNZ outlines risks of commercial property debt

This country's entire stock of commercial property is worth around $180 billion but punches above its weight in terms of risk, according to a report on the commercial property sector by the Reserve Bank (RBNZ).

The report Commercial Property and Financial Stability said this country's stock of commercial properties (retail, office. hospitality and industrial) was worth around a quarter the value of the residential property sector and carried about $30 billion in debt.

"While commercial property lending makes up only 9% of total bank lending, it is perceived as relatively high risk and so plays a comparatively important role in determining banks' capital requirements," the report said.

"Indicative estimates suggest that commercial property has an average risk weight of approximately 95% compared to about 30% for housing loans, implying that the sector accounts for about 20% of banks' risk-weighted assets."

The report said at least 66% of the total commercial property stock was owned by investors, with the reminder held by owner-occupiers.

It also noted that overseas investors had a growing share of the market while domestic institutional investors (apart from listed property vehicles) had been reducing their commercial property assets.

"The recent sale of an AMP portfolio valued at more than $1 billion to a Canadian pension fund was a key driver of both these trends," the report said.

To read the RBNZ's full nine page report on the commercial property sector, click on this link.

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