EBA final guidelines on ADC exposures to residential property under CRR

The European Banking Authority (EBA) has issued its final guidelines, accompanied by a press release, on the treatment of acquisition, development and construction (ADC) exposures to residential property under Article 126a of the Capital Requirements Regulation (CRR). These guidelines mark the first phase of the EBA's roadmap for implementing credit risk provisions under the EU Banking Package. They clarify the conditions under which institutions may apply a reduced risk weight of 100%, instead of the default 150%, to ADC exposures that meet specific credit risk-mitigating criteria. These conditions include: (i) at least 50% of total contracts must be either pre-sale contracts with a cash deposit of at least 10% of the sale price, pre-lease contracts with a cash deposit equal to or exceeding three times the monthly lease rate, or a combination of sale and lease contracts; and (ii) obligor-contributed equity of at least 25% of the property's value upon completion. This threshold was revised down from 35% following the May 2024 consultation. The guidelines also introduce flexibility for public housing projects by reducing the equity requirement to 20% and broadening the scope of eligible equity to include committed subsidies.

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