IMF forecast of deep global recession will send investors fleeing the property market, say analysts

By Cheryl Arcibalcheryl.arcibal@scmp.com

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April 28, 2020 12:09 PM SGT

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The International Monetary Fund's forecast of a deep global recession is likely to send investors fleeing the property market in the foreseeable future, analysts say.

The IMF said last week that the global economy would probably shrink 3 per cent this year, a much deeper slump than during the financial crisis in 2009 when growth contracted by 0.7 per cent. The downturn this year is likely to be the worst since the Great Depression almost a century ago.

The grim outlook means investors will be cautious, dimming demand for real estate.

"Unsurprisingly, the latest IMF forecasts paint a challenging picture for Asia-Pacific real estate markets in 2020," said Kevin Coppel, managing director for the region at Knight Frank.

"With growth expected to be in negative territory for most markets, there is likely to be a contraction in demand for commercial real estate, impacting vacancy rates and rents. A heightened level of uncertainty, as well as concerns about cash flow and supply chains, may also exacerbate the projected fall in demand."

More mainland Chinese investors, for one, are reducing their investments this year. A survey by property consultancy Cushman & Wakefield found that nearly half of them were looking to cut the size of their investment in 2020, while only 13 per cent would be raising it. The rest " 39 per cent " was intending to keep the amount unchanged.

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"For the third year in a row, the number of investors that were increasing their overseas investment declined, now down to just 13 per cent of respondents," said Cushman's investor intention survey, which polled over 40 senior real estate investors.

The survey was under way when the Covid-19 pandemic fist emerged. Cushman said the economic downturn brought on by the outbreak "will have a significant impact on deal volume in 2020."

In the US, about 1.3 per cent of commercial real estate deals fell apart in March, a significant rise from the 0.2 per cent in February, and the 0.4 per cent monthly average from 2016 to 2019, according to Bloomberg, citing data from Real Capital Analytics.

"The coronavirus spread and response remains an evolving situation which is already having an impact on the global real estate market. Due to the unknowns about the duration and extent of the disease's spread, it's hard to predict how long the impact will be," said a JLL spokesperson. "In times of uncertainty, we often see delays in decision making for investment."

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Given the IMF's forecast of 5.8 per cent growth in the global economy in 2021, Coppel of Knight Frank said the property market may see a solid recovery next year.

"While retail, hospitality and tourism have been impacted initially, other sectors will continue to see growth, including e-commerce, food retailing, pharma and telecommunications," he said. "On the investment side, the accommodative monetary policies will continue to ensure that the best-located assets, with more robust tenant profiles, will continue to be in demand."

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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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