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The Rippling Effects of the Russia-Ukraine Conflict on the Real Estate Global Economy

The Rippling Effects of the Russia-Ukraine Conflict on the Real Estate Global Economy

The tragic scenario unfolding in Ukraine will have widespread economic repercussions. The damage may spread to the U.K. and the U.S. real estate market, but analyst say the impact may be negligible. Russian oligarchs have purchased some of the most expensive properties in New York City and Miami, and their assets could be blocked or frozen. But Russian capital is very minor in global property markets, with outbound flows averaging just $330 million per year in the last five years, according to Real Capital Analytics http://www.rcanalytics.com. Known Russian ownership of commercial assets in the world’s biggest property markets is minimal. Ukraine’s institutional property market is also small and domestic, so international exposure is sparse.

Economists have warned that the Ukraine – Russia conflict could have the impact of increasing inflation in the U.S., which would have consequences for the housing market. The high inflation rates leads to higher rents and also increased construction costs. The increased cost of building materials, inflation and also higher mortgage rates could combine to put a serious dent in new home affordability, experts have said. http://realtybiznews.com. The financial pain that households are experiencing could get worse, increasing downwards pressure on house prices.

Knightfrank.com writes that while it is a mathematical inevitability that inflation will start to fall later this year, the risk that it will spike higher in the short term has risen sharply.

Other experts argue that if the war continues and these world powers make good their threat of imposing sanctions on Russia, it might affect significantly global economy including the real estate sector. Oil price has already gone above $100 mark due to disruptions in the global supply chain arising from the Ukraine crisis. Some of them explained that the oil price could impact the sector in the form of an increase in the cost of building materials production.

For Paul Nweke, an expert in Civil Law, “For the Nigerian real estate sector, this is a grim reality given that the sector imports majority of its building materials, especially finishing materials, from outside Nigeria. The war will not allow importation of building materials aside a halt in capital inflows for other business settlements. The war if not halted, will result in hikes of cost of moving building materials from Europe because the effects of the war would be felt in the European world.

The Rippling Effects of the Russia-Ukraine Conflict on the Real Estate Global Economy

Economists are also warning that the U.S. housing market should brace for some possible changes in consumer behaviour. The global unrest could give American consumers the jitters and prompt them to cut back on spending and economic activities. The conflict could put more pressure on rising oil and food prices, which, in turn, could weigh more heavily on consumers’ household budgets. According to an agency report, aspiring homebuyers in all price ranges may become more hesitant to make large purchases amid stock market uncertainty and fears of how a potential full-blown war in Europe might affect U.S. inflation – which is already at a 40-year high.

Meanwhile the reserve level has continued a downward trend largely due to the foreign exchange market intervention by the apex bank, in a bid to ensure stability of the local currency. This implies that the Central Bank sells foreign exchange in the official market at a conservative rate to manage the volatility in the currency.

Thus, judging from the prevailing economic winds created originally from the inflationary pressures of the pandemic, and now exacerbated by the war in Ukraine could provide the impetus for much needed balance in our local real estate market. The longevity and depth of the conflict in Ukraine will dictate the severity of the economic influences that we experience in the real estate market globally.

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