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Real Estate Risk and Exposure of Banking Institutions to Real Estate

Author

Listed:
  • Seow Eng Ong
  • Mohd Khairul
  • Muhammad Faishal Ibrahim
  • Le Thi Thanh Thao

Abstract

Analyzing the real estate risk sensitivity of GCC banking institutions, we found that both real estate loan and equity exposure of conventional and Islamic banks positively increases its real estate beta risk. The results persist across different subsamples. As expected, the effect is more persistent during time periods when bank's real estate exposure is elevated. Generally, due to the greater real estate exposure of Islamic banks, they possess greater real estate beta risk than conventional banks. However there is no evidence that Islamic banks real estate exposure has a differential effect on real estate risk vis-à-vis conventional banks. With limited Shariah compliant real estate hedging capabilities, improving the management of real estate risk in Islamic banks could be a potential foray for regulators and product structurers.

Suggested Citation

  • Seow Eng Ong & Mohd Khairul & Muhammad Faishal Ibrahim & Le Thi Thanh Thao, 2013. "Real Estate Risk and Exposure of Banking Institutions to Real Estate," ERES eres2013_103, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2013_103
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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