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ECB stimulus could be a boon for New York real estate

By Konrad Putzier

The new ECB headquarters in Frankfurt, Germany
The new ECB headquarters in Frankfurt, Germany

The European Central Bank’s monetary stimulus program may be too late and too small to turn around Europe’s economy, but it could give real estate a boost.

“If the QE program is successful, the impact on property markets in general could be substantial as even more demand will now be diverted into the market,” David Hutchings, Head of EMEA Investment Strategy at Cushman & Wakefield, said in a press release.

ECB president Mario Draghi unveiled a bond-buying program (or quantitative easing) worth 60 billion Euros a month today (Thursday). The program could rise to a total volume of 1 trillion Euros ($1.2 trillion) by the end of 2016, which still pales in comparison to the $3 trillion the Federal Reserve has pumped into the economy since 2008.

A number of economists, including Nouriel Roubini, have criticized the plan as too timid to save the Eurozone from deflation and get its economy going again. But brokerage Cushman & Wakefield reckons it will have a positive impact on real estate prices, much like the Fed’s QE has had in the U.S. in recent years.ECB graph

By pushing down bond yields, monetary stimulus programs tend to make yields offered by real estate more attractive by comparison. In the past, this has pushed investors into property markets, as well as stocks and junk bonds.

Without the monetary stimulus, C&W expects European investment in real estate to rise by five to ten percent and yields to fall by 0.2 to 0.3 percentage points this year. With the stimulus, it sees a growth in investment of more than 20 percent and a 0.4 to 0.7 basis point-decline in yields.

While Europe’s property markets would be the most immediate beneficiary of Draghi’s stimulus, its effects could also be felt in New York. European firms have been investing in real estate in major U.S. cities in part because returns here are often higher than in Europe. With quantitative easing further driving down yields across the Atlantic and making capital more easily available, European interest in New York real estate could increase.

According to Real Capital Analytics, German firms invested $2.82 billion in U.S. real estate in 2014 – up from $2.39 billion in 2013 and the highest volume since 2008. French and Italian investment also grew significantly last year – albeit on a much smaller scale.

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