The Netherlands’ financial regulator has warned against overheating in the commercial property market, as prices are rising fast and leveraged investments are increasing.

According to financial newspaper FD, Klaas Knot, president of De Nederlandsche Bank (DNB), urged property financiers “to keep themselves in check”.

“We know from the past that vulnerabilities build up during times of boom, and that the worst deals are made at the top of the market,” Knot said during the presentation of DNB’s six-monthly report about financial stability.

Knot also warned against the impact of a hard Brexit, trade wars, and a potential correction in financial markets, FD reported.

The deep crisis on the property market from 2008 to 2012 caused heavy losses for property investors that had been very generous with loans. Dutch bank SNS Reaal was nationalised during the crisis after incurring crippling losses.

However, prices for commercial property have risen fast since then, in particular in the Randstad, an area of the Netherlands encompassing the cities of Amsterdam, Rotterdam, the Hague and Utrecht.

DNB said it had noticed that the loan-to-value ratio was increasing, and was up to 70% on average. The ratio was almost 80% for rental property.

An additional concern cited by DNB was that property tax could be far too high, which might make loan-to-value ratios more risky than they seem.

DNB also said market players had indicated property investors relaxing the terms and conditions of deals and setting lower demands for paying off loans.

FD noted that interest rates on property loans were falling, with one-third of bank loans carrying a rate of less than 2% for a duration of often less than five years.

This meant that hardly any risk premium was being paid, the newspaper said.

According to DNB data, Dutch pension funds invested a total of €124.7bn in real estate at the end of June 2018 – roughly 9% of total assets.

From the September/October edition of IPE Real Assets: 10 years after Lehman: This time it’s different