Impacts of US monetary policy on Pacific Rim commercial real estate – The Property Chronicle
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Impacts of US monetary policy on Pacific Rim commercial real estate

The Professor

Rising interest rates are of concern for global economists and practitioners, as an increasing level of government bonds have been employed throughout the world during the Covid pandemic. To read my forecast of the incremental interest rates, see my recent journal article and PhD thesis.

Details of the varying magnitude of interest rate sensitivity for different types of REITs across the Pacific Rim region was assessed in these analyses and the findings are essential for institutional investors seeking real estate exposure in the post-Covid environment. This is particularly so with the growth of refinancing capital and newly troubled loans during the pandemic, according to Real Capital Analytics reports.

End of historically low interest rates?

To overcome economic obstacles (eg, high unemployment rates) and lift economic growth during the Covid crisis, an increasing level of government bonds (government spending) have been utilised by governments throughout the world. This has led the percentage of debt to GDP across the Pacific Rim region to reach the highest level in 25 years (see figure 1). 

International economists and practitioners have been concerned that a persistently elevated supply of government bonds could lift the equilibrium interest rate, particularly following the historically low interest rates since the GFC. In the Pacific Rim region, 10-year bond yields have increased 97 bps in the US, 83 bps in Australia, 78 bps in Singapore and 8 bps in Japan since October 2020 (see figures 2 and 3). There has also been a surge of 10-year bond yields across Europe (eg, in Germany and Italy). 

In May 2021, US Treasury Secretary Janet Yellen conceded that short-term interest rates might rise to control an overheated economy resulting from the trillions of dollars in government stimulus spending. This is despite the US Federal Reserve pledge to keep interest rates near zero until 2023. Singapore has taken the first step to raising short-term interest rates by 3 bps since October 2020 (see figure 3). In the emerging markets, China, Russia, Turkey and Brazil have hiked short-term interest rates in a bid to stem accelerating inflation in early 2021. 

The Professor

About Robbie Lin

Robbie Lin

Robbie Lin is a PhD in property investment and finance at the University of New South Wales. His research agenda has covered the investment performance and interest rate risk management of multiple real estate sectors in institutional investors' portfolios across the Asia-Pacific region.

Articles by Robbie Lin

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