GLOBAL REALTY IN DEFENSIVE STANCE

GLOBAL REALTY IN DEFENSIVE STANCE

AS THE EFFECTS OF COVID-19 ARE FELT AROUND THE WORLD, COUNTRIES ARE BEING IMPACTED IN DIFFERENT WAYS. THE REALTY MARKETS ACROSS REGIONS WERE EFFECTED LARGELY DEPENDENT ON REGIONAL DYNAMICS AND ASSET CLASSES. IN THE NEAR-TERM, GOVERNMENTS ARE CONCERNED WITH PRESERVING VALUE AND LIQUIDITY TO ENHANCE ECONOMIC GROWTH IN THE COMING YEAR.

By: Sapna Srivastava

Asia Pacific is the largest region in the global real estate market, accounting for 39% of the market in 2019 followed by Western Europe as the second largest region accounting for 24% of the global real estate market, while Africa comprises the smallest region in the global real estate market. But, the Year 2020 proved to be a roller coaster ride for the entire global real estate market with markets of scale with access to capital, leading the recovery. In a recent projection by the IMF, the GDP of 170 countries is shrinking due to the Coronavirus pandemic.

Record low interest rates, government intervention and a diversification of lender profiles continue to support real estate debt markets globally. As per JLL, “Transaction pipelines are rebuilding globally and are offering a sense of optimism for the quarters ahead. Investors remain cautious with many preferring defensive, income-oriented assets. Opportunistic and high net worth investors are poised to capitalize on market fragmentation while institutions remain critical of pricing. Markets are firmly in price discovery, and value transparency is expected to rise as activity steadily increases.”

MEASURES ACROSS THE WORLD FOR REAL ESTATE

According to International Monetary Fund the world economy is in to recession and in response governments across the world are focusing on infrastructure and real estate, considered the backbone of the economy to boost economic growth.

  1. Australian Government has reduced the benchmark Repo rate. It has also created a special funding facility to the tune of AUD 90 billion to help the ailing economy.
  2. The French government has declared Coronavirus epidemic a ‘Force Majeure’ and has waived off penalties on the contractors or developers for any delays attributed to the deadly pandemic.
  3.  USA congress has announced special financial package to help construction workers and provide relief to federally funded projects.
  4. Government of Canada is providing $27 billion direct support to Canadian workers (including construction labourers) and some states have included the building and construction into essential services list.
  5. Singapore Government has made special provisions to help the affected construction industry and labourers and has allowed a refund on account of Man Year Entitlement (MYE) for construction companies.
  6. Germany has readied the largest ever (Euro 400 billion) welfare package for the country and plans to compensate employees for the lost working hours due to Corona crisis.
  7. The United Arab Emirates (UAE) has released $27 billion stimulus to aid the economy and has rolled out a special package for small and medium enterprises and construction industry.
  8. Several European countries have either halted evictions or provided temporary mortgaged relief to the citizens. The commercial real estate owners are also being offered mortgage holidays.
  9. Countries such as Canada and Brazil have done a significant rate cut in the policy rates to infuse liquidity into the markets.
  10. China has provided a special refinancing to the tune of Yuan 800 bn.

The global real estate market is expected to grow from $2673.1 billion in 2019 to $2696.7 billion in 2020 at a compound annual growth rate (CAGR) of 0.9%. The low growth is mainly due to economic slowdown across countries owing to the COVID-19 outbreak and the measures to contain it. The market is then expected to recover and grow at a CAGR of 8% from 2021 and reach $3323.3 billion in 2023.

THE YEAR 2020 SCENARIO:

The year had some peculiar ongoing global trends such as conflict among major world economies and pushback against globalization. The pandemic has intensified these trends building newer geopolitical and economic shifts that are impacting all business segments including global property markets.

During the Global Financial Crisis (GFC) of 2007- 2009, a  downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. This resulted in USA, EU and a number of Asian nations crafting a coordinated response to the global financial crisis.

This time around, there have been no large scale global response and coordination to the economic threat, instead countries are turning inwards toward capitalizing local demand and demography and nationalism.

 

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