Originally published in February 2021.

The pandemic has been with us for over a year, infecting more than 100 million people. Although vaccinations have begun around the world, the damage to the global economy is done. According to the International Monetary Fund (IMF), the world economy shrank by 3.5% in 2020 as lockdowns, freight bottlenecks and almost complete annihilation of global travel affected international trade. According to the World Tourism Organisation (UNWTO), global tourism took the biggest hit, with international travel contracting 74% in 2020. In comparison, during the global financial crisis in 2008, global travel shrank by only 4% and the global economy by 0.8%.

Amid this unprecedented environment, the flow of capital into the real estate market only contracted by some 20% globally in 2020. During the global financial crisis, the market contracted by some 54%. Most severely impacted in 2020 was America, with a 32% contraction, followed by EMEA at 25%.

Asia-Pacific markets also suffered, but given the region’s experience with SARS, the cities were much quicker to impose social lockdowns and contain the spread of the pandemic than Europe and North America. The contraction in real estate activity in the Asia-Pacific was around 10% in 2020.

Nonetheless, the economies in the Asia-Pacific are on the cusp of a recovery. Purchasing Managers’ Index figures (a leading indicator for prevailing economic trends) for January are in stable to expansionary mode across major APAC markets, except Japan which is marginally below 50. Manufacturing PMI for ASEAN has been in an expansion zone since November 2020, backed by highly expansionary fiscal and monetary policies. Other than China, yields of major short-term government bonds in the Asia-Pacific are well below those of a year ago, supporting the economic recovery. 

However, the recent emergence of a more contagious variant of the virus has spooked the equity market. The CBOE VIX Index rose at the end of January, suggesting greater market volatility.