From market instability to credit stability: “property value” as a new standard for the prudential valuation of real estate

The determination of Property Value (PV), understood as sustainable value, plays a central role in the prudential valuation of properties, with significant implications for credit risk management and the financial stability of banking institutions. Regulation (EU) 2024/1623 requires the adoption of estimation methodologies grounded in scientific rigor, objectivity, and longterm sustainability, distinguishing PV from Market Value (MV) and ensuring its independence from speculative market dynamics. This paper proposes an innovative procedure for determining PV based on an income approach, consistent with the principles of prudential valuation as defined by international standards and European legislation.The model is inspired by the German Mortgage Lending Value (MLV) methodology, reworked to account for PV-specificities, and introduces corrective measures to ensure income sustainability, mitigate market risk, and integrate ESG factors into the evaluation process. By analyzing economic, technical, and regulatory variables in a structured manner, the model establishes a stable, prudent, and speculative-free value, ensuring the soundness of mortgage guarantees. The methodology’s effectiveness is verified through a case study that highlights PV’s greater robustness than MV in mitigating credit risk.The proposed methodological architecture is configured as a reference tool for valuation professionals and financial institutions, with development perspectives focused on integrating advanced econometric models to improve the calibration of risk and ESG variables.