Central Bank finalises macroprudential policy framework for Irish property funds

The measures (27 pages / 461KB PDF) will apply to Alternative Investment Fund Managers (AIFMs) of Alternative Investment Funds (AIFs) that are domiciled in Ireland, authorised under domestic legislation, and which invest 50% or more directly or indirectly in Irish property assets (property funds). According to the framework, the Central Bank will only authorise new property funds with leverage below a 60% total debt-to-total assets limit. For existing property funds, the leverage limit will be subject to a five-year implementation period.

Claire Winrow of Pinsent Masons said: “The Central Bank has introduced the new measures in order to guard against potential risks in the Irish property fund sector”.

“It is interesting to note that the Central Bank said that even though funds which invest in property outside of Ireland may face similar risks, the Central Bank is only imposing the restrictions on Irish authorised funds that invest 50% or more directly or indirectly in Irish property assets. The measures will be monitored by the Central Bank to ensure that they are achieving their aims and not placing undue burden on market participants or the broader economy,” she said.

The framework, which was published after an industry consultation, also contains guidance to limit liquidity mismatch in property funds. The Central Bank said that it generally expects property funds to have a minimum liquidity timeframe of at least 12 months, taking into account the nature of the assets held. The Central Bank expects newly authorised property funds to adhere to the guidance from inception will provide an 18-month implementation period for existing property funds to take appropriate actions in response to the guidance.

Gayle Bowen of Pinsent Masons said: “The final measures now confirmed by Central Bank are less restrictive than originally proposed and give managers more time to implement. It is good to finally have clarity on this issue, as the lack of clarity had impacted financing deals in the market where Irish property assets were involved, with banks reluctant to lend without knowing what the restrictions would be. Hopefully now, managers are able to adjust existing portfolios to the new requirements over time and banks will have more confidence in lending to Irish property funds.”