Property Cycles in a Global Economy

Abstract

Property cycles are varied in terms of their amplitude, their periodicity and the impact they exert on the wider economy. In periods of domestic macroeconomic stability, property cycles tend to be endogenous-i.e. caused by disequilibria in the sector — and they are relatively subdued. In periods of domestic macroeconomic instability, property cycles tend to be exogenous-i.e. caused by various conditions in the macroeconomy-and sometimes feature exceptional fluctuations. The exceptional cycles, with heightened amplitudes and longer periodicity, exert relatively deep and protracted impact on the wider economy. But, the international 'non-system' which has developed since the breakdown of Bretton Woods has placed the property sector in a wider context in the sense that, in addition to influences of domestic macroeconomic conditions, major property cycles are now influenced by various conditions in the international economy. The post-Bretton-Woods period is characterised with deregulation, integration of diverse economies, structural/spatial changes and the very high and still growing capital mobility supported by the rapid progress of financial technology in a multipolar world economy. Two important consequences of these changes have had direct and indirect impacts on property markets. First, deregulation and the ensuing intensification of competition between the banking sector and capital markets narrowed margins and led to excessive lending to the property sector. But, the overinvestment in the property sector in the upturn was unsustainable and turned into non-performing loans in the inevitable downturn, thus increasing risks to the banking sector and threatening the stability of financial systems. This has drastically curtailed the ability of the banking sector to provide capital to finance recovery. Secondly, rapid and voluminous movement of international finance capital increased liquidity in domestic markets and led to rises in asset prices, including property. So, the two-way interdependence between the property sector and the macroeconomy has become more significant in the post-Bretton-Woods period. Accordingly the IMF and the World Bank, through their adjusted policies, are now playing increasingly important roles in international property development, albeit in an indirect way. The purpose of this article is to examine the post-1980 international property cycles in the context of the 'non-system' global economy with particular reference to some Asian examples.