Throughout the past year, the Federal Reserve System and the Governing Council of the European Central Bank have continuously and gradually raised interest rates.
As of February 8, the highest lending rate (key refinancing rate) in the euro area was 3%,
While the interest rate on deposits related to savings rates reached 2.5%.
Around the same time, Eurostat announced that it expected a year-on-year inflation rate of 8.5% in the eurozone for January.
The Swiss Central Bank also intervened, putting an end to its negative interest rate policy.
Why do central banks raise interest rates?
First, let’s look at the reasons for the rise in prices. The European Central Bank and the Swiss Central Bank are raising interest rates to keep inflation under control.
High interest rates make loans more expensive, thus weakening demand for consumption and investment.
This, in turn, should stabilize prices and prevent the economy from overheating.
How is the real estate industry feeling the effects of raising interest rates?
One obvious effect of increasing interest rates on the real estate industry is the potential for reduced demand for property purchases and investments.
As rising interest rates increase the cost of loans, many people and businesses are forced to avoid purchasing real estate or postpone their plans.
This may lead to a stagnation or even decline in the real estate market.
There is also another impact of high interest rates on the real estate industry, which is the change in real estate prices.
Households and companies in this case must pay higher interest rates or make higher equity contributions to acquire properties.
As a result, many real estate buyers are withdrawing from the market or switching to cheaper options, adding pressure to prices.
Impact on the construction industry
In the construction industry, higher interest rates lead to lower investment in new construction projects.
In times of negative interest rates in Switzerland, it did not make sense to have capital sitting in the bank.
Real estate investors were eager to spend and invest, failures in construction projects were tolerated, and quantity often took precedence over quality.
The economic situation will now determine the opposite direction, and as higher interest rates increase the cost of loans,
Many project developers may have difficulty obtaining the necessary financing to start new projects, and this may lead to stagnant or even declining construction activity.
In addition, higher interest rates also cause the cost of raw materials and construction materials to rise,
increasing the overall cost of construction projects.
Over time, this means difficulties for many construction companies
in offering competitive prices and the risk of lower profit margins in the long term.
How the real estate and construction industries can benefit from virtual reality technology
While prime interest rates and construction costs in general are rising?
However, it is not all negative,
in terms of the impact of rising interest rates on the real estate and construction sectors.
The new economic situation forces companies to rethink their business operations
and look for innovative solutions to save costs and time,
As well as offering unique buying experiences to their customers,
this can lead to increased competitiveness in the long term.
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