Business and Economics > Real Estate

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Andrea Deghi, Mr. Fabio M Natalucci, and Mahvash S Qureshi
After dropping sharply in the early phases of the COVID-19 pandemic, commercial real estate prices are on the mend. However, the initial price decline, as well as the pace of recovery, vary widely across regions and different segments of the commercial real estate market. This note analyzes the factors that explain this divergence using city-level data from major advanced and emerging market economies. The findings show that pandemic-specific factors such as the stringency of containment measures and the spread of the virus are strongly associated with a decline in prices, while fiscal support and easy financial conditions maintained by central banks have helped to cushion the shock. A higher vaccination rate has aided the recovery of the sector, especially in the retail segment. Structural changes in private behavior such as the trend toward teleworking and e-commerce have also had an impact on commercial property prices in some segments. The outlook of the sector across regions thus remains closely tied to the trajectory of the pandemic and broader macroeconomic recovery, financial market conditions, and the pace of structural shifts in the demand for specific property types. In an environment of tightening financial conditions and a slowdown in economic activity, continued vigilance is warranted on the part of financial supervisors to minimize financial stability risks stemming from potential adverse shocks to the sector.
André Geis and Ms. Oana Luca
Soaring real estate prices and valuations despite the economic downturn brought by the pandemic have focussed the attention of Dutch policymakers on potential macro-financial and socio-economic implications. In this context, our paper reviews the salient features of Dutch commercial and residential real estate markets with an eye to identify pertinent risks and challenges. While we find that the Dutch authorities have made considerable strides to strengthen real estate-related policies in recent years, some, and partly long-standing, issues remain, requiring additional efforts to bolster financial stability, address housing supply shortages and manage secular changes affecting property markets.
Ms. Sally Chen and Katsiaryna Svirydzenka
Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output gap are the best leading indicators in advanced markets; in emerging markets, these are equity and property prices and credit gap. Moreover, aggregating this information flags financial crisis many years before the crisis. Lastly, we find that the length of financial cycles is of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers.
Weicheng Lian
This paper separates the roles of demand for housing services and belief about future house prices in a house price cycle, by utilizing a feature of user-cost-of-housing that it is sensitive to demand for housing services only. Optimality conditions of producing housing services determine user-cost-of-housing and the elasticity of substitution between land and structures in producing housing services. I find that the impact of demand for housing services on house prices is amplified by a small elasticity of substitution, and demand explained four fifths of the U.S. house price boom in the 2000s.
International Monetary Fund. Statistics Dept.
A technical assistance (TA) mission was conducted during June 18–22, 2018 to support the State Statistics Service of Ukraine (SSSU) in improving the residential property price indexes (RPPI) for Ukraine. This was the second of a series of SECO2 RPPI-funded TA missions to take place until mid-2019 that will assist in building staff capacity for further development of the RPPI. RPPIs have been identified as critical ingredients for financial stability policy analysis. The indexes are used by policy makers as an input into design of macroprudential policies, that is, those policies aim to reduce systemic risks arising from “excessive” financial procyclicality (such as asset bubbles). RPPIs are also used by policy makers to inform monetary policy and inflation targeting.
International Monetary Fund. Statistics Dept.
A technical assistance (TA) mission was conducted during July 9–13, 2018 to assist the General Statistics Office of Vietnam (GSO) with the development of a residential property price index (RPPI). This was the first mission conducted to Vietnam under the auspices of the multi-annual STA Data for Decisions (D4D) trust fund. The main objective of TA provided to Vietnam under the D4D will be to assist the GSO to develop an RPPI. The GSO recently launched two initiatives to collect potential source data for the RPPI since taxation data are unreliable in respect of reported transaction prices, and the State Bank of Vietnam (SBV) does not collect loan level mortgage data.
Ms. Yu Shi
This paper identifies a new mechanism leading to inefficiency in capital reallocation at the extensive margin when an economy experiences a sectoral boom. I argue that imperfections in the financial market and capital barriers to entry in the booming sector create a misallocation of managerial talent. Using comprehensive firm-level data from China, I first provide evidence that more productive firms reallocate capital to the booming real estate sector, and demonstrate that the pattern is likely driven by fewer financial constraints on these firms. I then use a structural estimation to verify the talent misallocation. Finally, I calibrate a dynamic model and find that the without the misallocation, the TFP growth in the manufacturing sector would have improved by 0.5% per year.