Commercial Real Estate and Macrofinancial Stability During COVID-19
IMF Working Papers, November 5, 2021
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- Commercial Real Estate and Macrofinancial Stability During COVID-19
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Bibliographic details
- Authors: Andrea Deghi, Junghwan Mok, Tomohiro Tsuruga
- Published: November 5, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781557759764.001
Summary
- The COVID-19 pandemic crisis has severely shocked the commercial real estate (CRE) sector, with important implications for macro-financial stability because of the large size of the sector and its strong interconnectedness with the real economy.
- Using a novel methodology, the paper quantifies vulnerabilities in the CRE sector and analyzes policy tools available to mitigate related risks.
- The analysis shows that CRE prices were overvalued in several major advanced economies in 2020:Q1.
- Price misalignments increase the likelihood of future price corrections and exacerbate downside risks to future GDP growth.
- The sector’s recovery will depend on the pace of overall economic recovery and structural shifts induced by the pandemic; however, easy financial conditions may contribute to an increase in financial vulnerabilities and persistent price misalignment.
- Macroprudential policy can be effective in curbing the financial stability risks posed by the CRE sector.
Key findings and technical approach
- CRE prices were overvalued in several major advanced economies in 2020:Q1.
- Price misalignments raise the probability of future price corrections and increase downside risks to future GDP growth.
- Easy financial conditions may contribute to increased financial vulnerabilities and persistent price misalignment.
- Methodological and technical elements (as indicated in the paper and keywords):
- Novel methodology for quantifying CRE vulnerabilities.
- Growth-at-Risk framework referenced as part of the analysis.
- Panel Quantile Regression cited among methodological approaches.
- Focus on CRE valuation and data description.
Policy implications and recommendations
- Macroprudential policy can be effective in curbing the financial stability risks posed by the CRE sector.
- Policymakers should monitor CRE price misalignments and the interaction between easy financial conditions and CRE valuations to manage downside risks to GDP growth and financial stability.
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- Working Paper