Appropriate amount of obligor-contributed equity
The amount of obligor-contributed equity to the residential property value upon completion should be considered as appropriate for the purposes of Article 126a(2), point (b), of the CRR, where the ratio of the amount of the obligor-contributed equity to the residential property's value upon completion is equal to or higher than 25%.
For the purposes of paragraph 19 of these Guidelines, only those investments made by the obligor into the immovable property qualify as obligor contributed equity which, if any, convey for the obligor only a residual claim on the property, either in the form of own use of the property or via the cash flows generated by the sale or lease of the property, that is in particular subordinated to any claim the institution might have from the provided financing, and are investments in the form of one of the following or a combination thereof:
Cash invested in the project and segregated from other assets of the obligor, available to cover the projected cost of the project, measured in the currency of the financing for the obligor and at the moment of the calculation of capital requirements;
Subsidies and grants already invested to cover the incurred costs of the project or segregated from other assets of the obligor available to cover the projected cost of the project, measured in the currency of the financing for the obligor and at the moment of the calculation of capital requirements;
Unencumbered readily marketable assets directly linked to the project and available to cover the projected cost of the project, should be measured in the currency of the financing for the obligor and valued at the market value of these assets at the time of calculating capital requirements. These assets should be easily sold or traded in the market. These assets should be contractually bound to be used for paying development or construction expenses linked to the project, and should be free from any legal claims, liens, or restrictions;
Expenses for development or construction, paid out-of-pocket by the obligor in direct connection to the project, measured in the currency of the financing for the obligor and at the moment of the calculation of capital requirements;
Land or improvements, paid out-of-pocket or already owned by the obligor, in direct connection to the project, measured in the currency of the financing for the obligor and at the market value at the moment of contribution of the obligor into the project.
Obligor-contributed equity is the total amount of investments qualified according to paragraph 20 that the obligor has already contributed, reduced by any excess costs currently expected for completing the immovable property. Excess costs are quantified by the difference, if positive, between total costs for completing the immovable property, both already incurred and still expected costs, and the property value upon completion measured as required by Article 229(1) CRR, i.e. as if the immovable property was already completed, taking into account the life of the loan and the potential for the current market value for such completed property to be significantly above the value that would be sustainable over the life of the loan. For the purposes of this definition, “excess costs” refers to the amount by which the total costs for completing the immovable property exceed the property value upon completion, and not the amount by which the costs exceed the estimated costs at origination.