"The trend is maintained"- interview with Dr. Marcy Rosell

Dr. Marcy Rosell, Chief Economist of Leading Real Estate Companies of the World.

What will be the expected economic consequences of the war in Ukraine for the EMEA region?

The World Bank recently updated their forecast for the region in light of the invasion, which is expected to destroy almost half of the GDP of Ukraine this year and curtail trade across the globe. Europe and Central Asia are now expected to contract by 4.1%, twice the size of the recession brought on by the pandemic in 2020. The stronger a country‘s trade, financial and migration links to Russia and Ukraine, the larger the expected impact.

Many analysts are concerned that the conflict pushes up construction costs and will cause housing prices to skyrocket. What is your expectation?

Lumber prices have actually fallen over the last year from their COVID-19 high of 1780 USD/1000 board feet, but the war is bringing additional supply chain disruptions that threaten the pace of home building across the globe. And countries with the largest refugee flows, such as Poland, Slovakia, Romania and Hungary, will see direct pressure on housing prices as demand for shelter soars in these areas. But at the same time, rising interest rates will work in the opposite direction, putting downward pressure on housing demand as mortgage costs increase.

Should we be concerned about diminishing supply due to the delayed start of new residential projects?

Housing was in short supply in many markets, even before the war. So the conflict is just making the problem more severe.

To what extent is the luxury property market affected by these trends?

Not much. Luxury markets tend to be much more insulated from political volatility than the rest of the housing market. And global stock markets have quickly recovered from the initial shock of the invasion. Other than direct purchases from Russian buyers that are stymied by sanctions, I don‘t expect the luxury market to stumble.

How will luxury buyers react to economic insecurity and market volatility?

The luxury buyer remained very strong during the pandemic downturn and I expect more of the same. Stock portfolios are secure, housing wealth is rising and higher interest rates mean wealthy people earn more from bonds. While the poorest of countries and people will suffer greatly from food insecurity and rising fuel prices, those items are a small percentage of spending for middle-income and high-income countries. And high oil prices are actually a benefit to luxury buyers from oil producing countries in the Middle East.

What about the luxury vacation home market?

The pandemic permanently changed the way that people across the globe live, work, and play. As a result, the demand for vacation homes is up pretty much everywhere. I don‘t believe that trend will be impacted by the war.

What is the best way to invest in real estate in turbulent economic times?

Real estate is a crucial investment for everyone, regardless of the state of the global economy. But it provides a strong hedge against inflation and helps diversify against stocks and bonds in times like these.

High-end properties are traditionally considered a good hedge against inflation? Would you advise affluent buyers to make such investment?

Every portfolio is different and every person is different. The right mix of stocks, bonds and real estate depends on your age and your risk tolerance. But at a time when stock prices have been rising dramatically, it might be the case that people don‘t own enough real estate for a balanced portfolio, especially in a time of rising inflation.