One Year of Property Value: From Regulatory Requirement to Everyday Practice

As a reminder: Regulatory Framework

The regulatory basis for Property Value is Art. 229 CRR III. With the revision of the CRR, Property Value was introduced as the sole reference value for the preferential treatment of real estate loans in capital requirements. The value must be determined prudently and conservatively, must not take expected price increases into account, and is intended to ensure that temporary market exuberance does not influence the valuation.

The German banking supervisory authorities have recognized two methods for determining property value:

• the mortgage lending value under the German Mortgage Lending Value Regulation (BelWertV), which meets regulatory requirements per se; and
• a market value-based approach, in which the market value determined by appraisal is adjusted in a subsequent step by applying an appropriate discount.

This discount can be determined on a portfolio basis using statistical market data. For the market value-based approach, vdp and vdpResearch have jointly developed a practical solution that provides consistent and transparent discounts for determining Property Value in both the German and selected foreign property markets.

Market-value-based approach gaining traction

After a full year, it is evident that many vdp member institutions determine the Property Value for new business using a market-value-based approach by applying a discount. The mortgage lending value under BelWertV remains a well-established and robust regulatory alternative.

Among the institutions that operate on a market value basis, a large proportion rely on the methodology developed by vdp and vdpResearch, often utilizing the discounts provided by vdpResearch. Some institutions have merely adopted the methodology but derive the discounts themselves based on their own or external data. Internal methodological developments remain the exception so far. When dealing with property types for which no market-based discounts are (yet) available, pragmatism prevails: many institutions use the mortgage lending value here, while others employ flat-rate or internally developed solutions. The focus is clearly on reliably meeting regulatory requirements without unduly complicating processes or establishing a host of new methodologies.

Clear division of roles and increasing automation

Many credit institutions clearly separate the valuation process from the determination of property value within their organizational structure, so that the latter does not constitute a valuation task. The discount is typically applied internally within risk control or reporting functions, or is fully automated by the system based on the market value determined by qualified and independent valuers.

This division of responsibilities underscores the nature of the Property Value as a regulatory control parameter rather than the result of a traditional valuation.

During its first year of implementation, initial reliable insights also emerged regarding the handling of the portfolio, which must be adjusted to the Property Value by the end of 2027. Most institutions are pursuing a gradual approach, often coupled with established real estate value monitoring. This approach allows institutions to meet regulatory deadlines while avoiding operational overload. Complete “one-off” switches remain the exception.

Conclusion and Outlook

The first year of practical application of Property Value shows that the new valuation concept has duly been adopted in banking operations.

Institutions have established viable solutions and integrated Property Value into their processes. The methodology developed by vdp and vdpResearch has proven to be a key component—on the one hand pragmatic and solution-oriented, and on the other hand contributing to harmonized implementation within the industry. It is particularly encouraging that the methodology is increasingly establishing itself beyond the circle of real estate financiers represented in the vdp.

At the same time, 2025 marked only an interim milestone. For 2026, the focus is on two topics:

• the validation of the vdp/vdpResearch methodology as a logical next step to empirically substantiate the robustness and appropriateness of the discounts, as well as
• initial audit experiences, which will provide additional clarity but may also offer new impetus for the further development of Property Value.

Property Value is thus evolving into an integral component of a prudent, forward-looking measure for calculating regulatory requirements. Many procedural questions—particularly regarding the monitoring of this new valuation approach—will continue to be discussed. The years to come will show how successfully regulatory requirements, methodological rigor, and operational practicality can be reconciled in the long term.