Research Briefing | Nov 29, 2022

Dark clouds gather as real estate risks mount

The global economic outlook has deteriorated, with downside risks threatening global real estate. An interest rate-induced pricing correction is set to dent near-term returns, with global all-property total returns expected to average 3.4% pa over 2022-2024 under our baseline scenario.

What you will learn:

  • However, as downside risks mount, the possibility of even weaker returns has increased. On a risk-adjusted basis, the weighted-average return for all scenarios this quarter is 2.7% pa.
  • Recently, the risk of a near-universal global housing market crash has risen sharply, spurred by rising mortgage rates, high valuations, and squeezed real incomes. Under this scenario, all-property returns would be nearly 6ppts below our baseline by year-end 2024. Advanced economies with already exposed housing sectors, such as Canada and the UK, would see returns dented the most.
  • But the greatest risk to property returns is a scenario where inflation remains elevated and central banks lose their credibility in controlling it. Under our high inflation regime scenario, global all-property returns fall 9.5ppts by 2024. Property values are severely hit, falling 12% below our baseline forecast.
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