A New Macroprudential Policy Framework For Irish Property Funds – Financial Services

At the end of 2022, the Central Bank published its
macroprudential policy framework for Irish property funds which
includes leverage limits and regulatory guidance to avoid liquidity
mismatch. 

Alternative Investment Fund Managers of Alternative Investment
Funds that are domiciled in Ireland will be in scope, provided they
invest 50% of more of their assets directly or indirectly in Irish
property, and are authorised under domestic legislation
(Irish Property Funds).

The introduction of these measures highlights that Irish
Property Funds have become key participants in the commercial real
estate market – the Central Bank policy framework confirms
that they held approximately €22.1bn of Irish property at
mid-2022. The aim of the policy is to strengthen resilience in the
property fund sector before adverse shocks occur.

Leverage limits

A 60% leverage limit on the ratio of a property funds’ total
debt to total assets has been introduced. This limit will be tested
annually and will encompass all sources of debt (including
shareholder loans, bank debt and non-bank lender
funding). 

Regulatory guidance

The Central Bank guidance requires Irish Property Funds to
provide for a liquidity timeframe of at least 12 months. The reason
for this is stated to be the illiquid nature of property assets and
the outcome is that Irish Property Funds may need to extend their
notice and/or settlement periods to better align with the liquidity
profile of their assets.

Key points to note

• From 24 November 2022 the Central Bank will only authorise new
  property funds with leverage below the 60% limit.




• In certain circumstances, if a property fund invests at least
  80% of its assets under management in social housing then the new
  leverage limit will not apply.




• Property funds undertaking development activity may use a
  different methodological framework for the purpose of calculating
  leverage.




• There will be a five year implementation period in respect of
  the leverage limit for existing funds.




• There will be an 18 month implementation period in respect of
  the regulatory guidance for existing funds.




• New funds authorised after 24 November 2022 will be expected to
  adhere to the new leverage limit and guidance immediately.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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