Since the beginning of 2025, a new and complex factor has added pressure to an already challenging environment for real estate financing: the introduction of Property Value under European banking regulation.
The issue was at the center of discussion at the Annual Conference of RICS Italia, held on February 24 in Milan at BPM’s Auditorium Bezzi, confirming the relevance and urgency of the topic for valuers, banks, and market participants.
The Origins of Property Value
The concept traces back to the 2008 global financial crisis, marked by the collapse of Lehman Brothers and the subprime mortgage crisis. In response, banking regulators intensified scrutiny of the value attributed to real estate collateral securing mortgage loans.
Through successive revisions, the Basel Accords introduced stricter competence and independence requirements for valuers. With the 2017 framework (commonly referred to as Basel 3.1), regulators established that collateral valuations must be based on conservative and prudent criteria.
The underlying objective is clear: banks must assess the long-term sustainability of collateral values to mitigate systemic risk in the event of significant property market downturns.
This principle remained largely recommendatory until 2024, when the European Union incorporated Basel 3.1 into the Capital Requirements Regulation (CRR), the framework governing the regulatory capital banks must hold against credit risk.
Under the 2024 revision of the Capital Requirements Regulation (CRR3), institutions must determine not only the market value of the collateral at origination, but also a dedicated Property Value. This value must be set at a level not exceeding the property’s market value over the full duration of the financing, and the valuation must be performed by an independent valuer.
As an EU Regulation, CRR3 became directly applicable across all Member States as of January 1, 2025.
Market Reactions to CRR3
While the intention of safeguarding financial stability is widely acknowledged, the introduction of Property Value initially generated considerable concern within the valuation community.
Forecasting market performance over three or four quarters is already complex. Estimating value resilience over ten, fifteen, or twenty years—the typical duration of a loan—raises substantial methodological challenges.
Subsequent technical debate has polarized around two contrasting interpretations:
- A centralized approach, under which a competent authority or banking association would define standardized percentage adjustments to market value by geography or asset class, based on statistical and econometric analysis
- An asset-specific approach, emphasizing that the regulation refers to individual properties and that resilience depends not only on macro trends but also on asset-level characteristics
Both perspectives present valid arguments and significant limitations.
The debate has also reflected differing positions among leading international standard setters. RICS has shown preference for a centralized framework, noting that CRR3 is a distinctly European regulation with limited parallels outside the EU. TEGOVA, by contrast, supports an asset-level interpretation, emphasizing professional judgment and the valuer’s role.
Compounding the uncertainty, CRR3 formally establishes Property Value but provides no operational methodology for determining it.
The Italian Approach to Property Value
During 2025, Italian banks progressively began requiring valuers to include Property Value in appraisal reports prepared for financing purposes.
To avoid leaving individual professionals solely responsible for methodological interpretation, Assoimmobiliare, with the support of the Professional Group Valuation of RICS Italia, published a dedicated position paper (in Italian): Determining Property Value: Application of Basel 3.1 Criteria for Property Valuation, released within its Quaderni series.
While not intended as a definitive solution, the document provides a structured conceptual framework and practical guidance for the market, highlighting both methodological risks and implementation challenges.
Four key principles characterize the Italian guidance:
- Clarification that Property Value represents a potential adjustment to market value. It cannot exceed market value but does not automatically have to be lower
- Explicit warning against double counting. Only future risk factors not already embedded in current market value should be considered. For example, a Class G energy-rated property may already reflect a market discount, yet future regulatory or market shifts could further impair its liquidity or value
- Recommendation of a transparent process, clearly documenting assumptions, adjustments, and supporting sources
- Proposal of a possible calculation methodology aimed at reducing excessive divergence driven by individual subjectivity
This framework seeks to balance prudence with professional rigor, while preserving consistency across the Italian market.
Looking Ahead
The “Property Value dilemma” remains unresolved. The debate is likely to continue as supervisory expectations, market practice, and professional standards evolve.
Attention now turns to the forthcoming appendix by ABI to its Guidelines for the Valuation of Real Estate Offered as Collateral, expected to address Property Value specifically. The expectation is that this guidance will incorporate insights from the Assoimmobiliare paper and contribute to greater alignment and coherence within the Italian market.
A shared and transparent approach will be essential to ensure regulatory compliance while safeguarding the interests of all stakeholders:
- Banks
- Borrowers
- Valuers
The challenge ahead is not merely technical. It is institutional. Establishing a credible and consistent framework for Property Value will shape the resilience of real estate financing in the years to come.
