Bursting Bubbles: Has the Fed Caused a New Crisis?

Moscow, Russian Federation, September 21, 2015 (Newswire.com) - America’s post-crisis easy money policy launched by the Federal Reserve in 2009 stimulated foreign investment into commercial real estate. The aggressive bond-buying policy was put to rest in October 2014 amid rumours of a bubble on the horizon. However, experts are still divided on whether it’s too late to avert troubled times ahead as foreign capital floods the market. The Federal Reserve on the other hand has just voted to maintain the interest rate at 0.25%, showing that it has no such fears quite yet.

The market hasn’t peaked yet: even as prices and volumes rise, there’s still room for growth in specific sectors. Investment capital raised by the U.S. government and major international investors has absorbed supply on the market.

Cheap credit contributed to the growth of transaction volume on the commercial property market by 36% in H1 2015 against the same period last year, reaching a total of $232 billion. Investments into commercial property in the U.S. have been growing steadily since 2010 and if it continues at the current rate, the volume of transactions could reach its pre-crisis peak within the next two years.

Demand is speculative for commercial real estate: it does not reflect true economic growth. However, Property development should intensify in coming years but high demand will maintain price and yield growth.

Outlook:

• While the interest rate set by the Federal Reserve stays the same, the risk of a bubble is low.
• Capital inflow from emerging markets are encouraging overheating on the market.
• The New York commercial property is the most popular and therefore the most at risk

You can find the whole report here.

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                                                                       Editor’s note

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