1. What kind of assets are to be included in the “Residential” and “Commercial” categories within “Mortgage Loans” for the purposes of supervisory reporting? For instance where should institutions assign garages, plots of land, storage rooms and rustic property etc. which are used as collateral? Are there more specific criteria to be used in assigning these assets? 2. Can we recognize as Commercial Real Estate the following types of property: Land for development, factories, plots of land for commercial purposes, slotted houses, schools and quarries etc.?
Exposures fully secured by mortgages on immovable property shall be assigned according to Article 124(1) of Regulation (EU) No 575/2013 (CRR), a risk weight of 100% unless the property is classified as residential or commercial real estate. Article 126(1) of the CRR allows for exposures fully and completely secured by mortgages on commercial property to receive a 50% risk weight where the conditions in Article 126(2) are met unless otherwise decided by the competent authorities in accordance with Article 124(2). In Article 4 (75) of the CRR there is a definition of residential property but no definition of commercial property. In the CRR, as in the ITS on Supervisory Reporting, two definitions are provided which do not clarify the issue raised above: “Residential property” is described as a “residence which is occupied by the owner or the lessee of the residence, including the right to inhabit an apartment in housing cooperatives located in Sweden”. “Commercial property”: “Offices or other commercial premises”.
Regarding reporting in the category "Mortgage loans [Loans collateralized by immovable property]" as specified by Annex V, Part 2 point 41(h) of Regulation (EU) 680/2014 (ITS on Supervisory Reporting), please note that this does not relate to reporting of capital requirements but to a breakdown of assets in the balance sheet. According to the reporting instructions, this does not require eligibility of the property for the risk weights according to Articles 125 or 126 of the CRR, but explicitly includes all "loans formally secured by immovable property collateral independently of their loan/collateral ratio".
This means that exposures secured by mortgages on immovable property (Article 124) should be restricted to exposures secured by residential or "offices or other commercial premises" properties. In determining whether an exposure meets the description of "offices or other commercial premises" for the purposes of Article 126(1) of the CRR, consideration should be given to the dominant purpose of the property in question, which should be linked to an economic activity.
However, this does not mean that all commercial immovable property is necessarily recognised for the risk weights for exposures or any part of an exposure fully and completely secured by mortgages on commercial immovable property according to Article 126 of the CRR. Recognition of "commercial immovable property" for the risk weights applicable to exposures or any part of an exposure fully and completely secured by mortgages under Article 126 of the CRR is restricted by the conditions set out in Articles 126(1) and (2).
See also Q&A 2013 94.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.