Commercial Real Estate and Macrofinancial Stability During COVID-19

By Andrea Deghi, Junghwan Mok, Tomohiro Tsuruga

November 5, 2021

Preview Citation

Format: Chicago

Andrea Deghi, Junghwan Mok, and Tomohiro Tsuruga. Commercial Real Estate and Macrofinancial Stability During COVID-19, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The COVID-19 pandemic crisis has severely shocked the commercial real estate (CRE) sector, which could have important implications for macro-financial stability going forward because of the large size of the sector and its strong interconnectedness with the real economy. Using a novel methodology, this 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. It also shows that such price misalignments increase the likelihood of future price corrections and exacerbate downside risks to future GDP growth. While the path of recovery in the sector will depend inherently on the pace of overall economic recovery and the structural shifts induced by the pandemic, easy financial conditions may contribute to an increase in financial vulnerabilities and persistent price misalignment. Macroprudential policy can, however, be effective in curbing the financial stability risks posed by the CRE sector.

Subject: COVID-19, Financial crises, Financial sector policy and analysis, Financial sector risk, Global financial crisis of 2008-2009, Health, Macroprudential policy, Prices, Real estate prices

Keywords: Asset Prices, Commercial Real Estate, COVID-19, CRE sector, CRE valuation, Data description, Financial sector risk, Global, Global financial crisis of 2008-2009, Growth-at-Risk, Macroprudential Policy, Panel Quantile Regression, Price correction, Price misalignment, Real estate prices

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/264
Stock No:

WPIEA2021264
ISBN:

9781557759764
ISSN:

1018-5941

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