The Global Real Estate Industry Reacts to the United States Federal Reserve's First Rate Hike in 2017.

 Despite the fact that the Federal Reserve's decision to lift short-term interest rates by 25 basis points was widely anticipated, many in the real estate industry around the world took note. شقق

 

Lawrence Yun, Chief Economist of the National Association of Realtors, told The World Property Journal, "Inside the United States economy, "The next monetary policy decision will be largely dictated by rising inflation, but another short-term rate hike is likely by the end of the summer. Because of the persistent housing shortages in most of the United States, rents and housing prices are currently rising faster than other elements. More housing construction is required now to curb inflation and slow the speed of potential rate hikes."

JLL reports on consumer reactions in a number of countries in the Asia Pacific region.

According to JLL, commercial real estate investors in Asia Pacific have long expected the US Federal Reserve to lift interest rates by 0.25 percent on March 15, 2017, following a hike of similar magnitude last December. Even though Congress will not pass the fiscal stimulus until the beginning of next year, President Trump's expected stimulus will likely allow the Fed to increase the speed of monetary policy normalization. At least three rate hikes are expected this year, bringing the Fed funds rate to between 1.5 percent and 1.75 percent by the end of the year, according to market expectations.

 

If the nominal rate increases at the same rate as inflation, real prices would be close to where they are now. We show in a recent study that prime office yields in the majority of Asia Pacific real estate markets are highly correlated with US real 10-year government bond prices. Core real estate yields may remain low as long as real rates remain constant, and yields in certain markets can also compress further as compared to their long-term ranges.

 

According to JLL, real estate spreads over real government bond rates are still lucrative, and when you factor in the opportunity to take on debt, leveraged cash-on-cash returns in major markets are still considerably higher than real government bond yields.

 

Furthermore, real estate's inflation-hedging characteristics will continue to draw investors looking for a hedge against rising inflation. However, there are some dangers in the transition from a long period of low interest rates and low inflation rates ("low-low") to a world of high interest rates and high inflation rates ("high-high"). In the short term, rising debt service payments could squeeze cash flows for over-leveraged investors if interest rates and borrowing costs rise more quickly than anticipated.

 

Australia is a country that has a

 

The AUD is supposed to be the primary transmission channel for the Fed rate increase, according to JLL. While a narrowing of the interest rate differential between the US and Australia should put downward pressure on the AUD, the AUD should be supported by a number of factors. In Q4, Australia's GDP shocked to the upside, and the positive tailwind from rising incomes could help the economy expand in 2017. Commodity prices play a role in this pattern, and while iron ore and coal prices have fallen from recent highs, both commodities have seen price increases in the past year.

 

Commercial real estate in Australia is currently valued at a level that can handle more rises in the real risk-free rate. Investors have remained disciplined, and the gap between property yields and the real risk-free rate is wider than historical benchmarks, despite property yields in core sectors compressing to 2007 levels.

 

Furthermore, the Fed is increasing interest rates in response to a strengthening US economy, and we've seen a strong link between US GDP and Sydney CBD office net absorption in the past. If this trend continues, we expect positive tenant demand to drive vacancy rates in Sydney to a cyclical low of 5.0 percent in 2019.

 

Japan is a country that has a

 

According to JLL, interest rate hikes in the United States would have an interesting effect on the Japanese economy and real estate market. The Bank of Japan (BOJ) announced a target yield of 0% on the 10-year government yield benchmark at its most recent policy meeting, positioning itself to steer the yield curve toward an acceptable upward shape. With most of the shorter end of the JPY yield curve in negative territory, the US rate hike has widened the yield gap between the two markets, causing the Yen to depreciate by nearly 14% since the November 8 election, to USD/JPY 117.5 (from USD/JPY 101).

 

The weakening of the yen has resulted in solid gains in the stock market, with the Nikkei 225 index surpassing 19,000 points, its highest level in over a year. The most recent Tankan survey, conducted in December, revealed that market conditions have improved almost everywhere since the September survey, especially in the crucial manufacturing sector.

 

In terms of the real estate market, a weaker yen would help the export-oriented manufacturing sector, as well as the already booming tourism industry, which benefits both the hotel and retail sectors. Property owners have benefited greatly from banks' willingness to provide longer-term loans due to favorable credit conditions. The BOJ's policies often result in relative yield stability around the yield curve, easing any upward pressure on cap rates seen in other markets.

 

China is a country that has a

 

According to JLL, changes in US interest rates should have little effect on the Chinese real estate market. We estimate that China's short-term interest rates have no correlation with those in the United States, owing to its vast economy and independent monetary policy period. Due to constraints and restricted foreign access, the onshore yuan bond market has historically shown little co-movement with foreign bond markets.

 

The RMB exchange rate against the USD should be the primary transmission channel of the Fed rate hike. China's government is becoming more wary of more RMB depreciation and accelerating capital outflows. The government is keeping a close eye on foreign investment, especially in real estate. Due to capital controls, there could be some short-term deal risks. Nonetheless, as part of the structural change of Chinese capital going global, outbound capital flows will continue to grow in 2017.

 

Corporations and individuals who find it more difficult to invest overseas will be compelled to consider domestic assets. Although the new purchasing restrictions may limit further increases in property prices, this should help to stabilize property prices in China. Chinese investors are expected to remain the primary buyers in China's market (domestic investors accounted for 87 percent of all transactions in 2016), and Chinese insurance companies are expected to increase their real estate exposure. We expect real estate prices in China to remain high, and yields to continue to compress, especially in Tier I cities such as Shanghai, Beijing, Shenzhen, and Guangzhou, due to sufficient liquidity.