Ruth Coppinger (Dublin West, Anti-Austerity Alliance)
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201. To ask the Minister for Finance his Department's assessment of the likely economic and social impact of a collapse in commercial real estate values in view of the statement in the latest European Commission report on Ireland that commercial real estate prices are volatile and a sudden fall in prices could have an adverse effect on the economy. [26994/16]

Michael Noonan (Limerick City, Fine Gael)
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Developments in the commercial real estate market, and the residential real estate market for that matter, are of significant importance for the economy and financial stability. The Commission's analysis of the sector follows strong growth in commercial real estate activity in recent years, with prices having recovered in the region of 55 per cent since the trough in the first quarter of 2013. As is well documented, commercial real estate prices are subject to pronounced cyclical movements and it is clearly important that developments in the sector are continually monitored.

In this regard, separate analyses on the Irish commercial real estate market included in the European Commission's Post-Programme Surveillance Spring 2016 Report, and the IMF Financial System Stability Assessment published in July, are inconclusive as to whether prices are over- or undervalued.

In response to the potential impact of a sudden drop in commercial real estate prices, the economy would be affected through its negative impact on real estate developers and construction activity. However, growth has been much more balanced across economic sectors since the recovery so the economy would be much less exposed to a decline in activity in the construction sector compared to the experience during the financial crisis.

As regards its impact on the banking sector, investment in the commercial real estate sector has been much more diversified both in terms of the type and origin of funds. As indicated in the Central Bank's latest Macro Financial Review, the primary source of the investment in Irish commercial real estate market has been from international private equity funds, REITs and other financial vehicles since 2012. Domestic banks exposure to the commercial real estate market has been limited for the most part to outstanding loans drawn down prior to the financial crisis.