Bulletin – June 2010 Commercial Property and Financial Stability – An International Perspective Abstract

Commercial property and property development have historically posed a greater direct risk to financial institutions' balance sheets than have housing and mortgage markets. A number of factors contribute to this: banks' commercial property lending is concentrated in loans for construction and development, which tend to be risky; imbalances can build up further because construction lags are longer; and incentives to avoid default are weaker for borrowers in the commercial property sector than they are for home loan borrowers. Conditions in global commercial property markets have been especially challenging in the current cycle.

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