Canada's banking regulator has issued warnings to major financial institutions regarding their property appraisal practices, according to sources familiar with the matter. The warnings come as condominium prices across the country experience a significant downturn.

The Office of the Superintendent of Financial Institutions (OSFI), Canada's federal banking regulator, has expressed concerns about how lenders are conducting property valuations in the current market environment. The regulator's intervention reflects growing worries about potential risks to the financial system as real estate values decline.

Condominium markets across Canada have been experiencing price pressures, with values dropping substantially from previous highs. This decline has raised questions about the accuracy of property appraisals used by banks when issuing mortgages and determining loan-to-value ratios.

The regulatory warnings suggest that OSFI is taking a proactive approach to ensure that financial institutions maintain appropriate lending standards and risk management practices during the market downturn. Banks rely heavily on property appraisals to assess collateral value and make lending decisions.

The real estate market correction has broader implications for Canada's financial stability, given the significant role that residential mortgages play in bank portfolios. OSFI's intervention indicates the regulator is closely monitoring lending practices to prevent potential systemic risks as property values adjust.