Commercial Real Estate and Macrofinancial Stability During COVID-19

Andrea Deghi, Junghwan Mok and Tomohiro Tsuruga

No 2021/264, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Commercial Real Estate; Asset Prices; Growth-at-Risk; Panel Quantile Regression; Macroprudential Policy; price misalignment; CRE sector; data description; CRE valuation; price correction; COVID-19; Real estate prices; Global financial crisis of 2008-2009; Financial sector risk; Global (search for similar items in EconPapers)
Pages: 55
Date: 2021-11-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-rmg and nep-ure
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