“Interest rates were a real nuisance”

The real estate industry is sensing a new dawn. The reason for this is the recent interest rate cut by the European Central Bank (ECB), the first since 2019. “The interest rates that have risen too quickly have been a real nuisance for the real estate industry so far. They have prevented many, many projects and slowed down the economy,” said President Andreas Mattner of the Central Real Estate Committee (ZIA) in Germany. “We welcome the long-awaited reduction in the key interest rate as the beginning of a turnaround in the crisis.” German Construction Minister Klara Geywitz said the interest rate cut would give the construction industry a new boost. “Cheap financing on the credit market is enormously important for housing construction.”

Expensive materials and expensive financing due to high interest rates are putting off many potential home builders and investors. As a result, housing construction is in massive decline because it is hardly worth building for property developers and project developers. The industry is calling for a relaxation of the more expensive building standards, for example in terms of energy efficiency. The lobby has long been calling for greater state aid, for example through interest rate reduction programs for private investors – not only in Germany, but also in Austria.

“A glimmer of hope”

The International Monetary Fund (IMF), on the other hand, considers the first interest rate cut by the eurozone’s monetary authorities since the wave of inflation in the eurozone to be “appropriate”. “As in the US, we have also seen significant progress in reducing inflation in Europe. We consider the ECB’s policy to be appropriate,” said IMF Communications Director Julie Kozack.

As reported, the monetary authorities around ECB President Christine Lagarde lowered the key interest rate by 0.25 percentage points to 4.25 percent. They cut the deposit rate that banks receive for parking money at the central bank from 4 to 3.75 percent. “Consumers, companies and especially the construction sector will benefit from the improved conditions,” said Moritz Schularick, government advisor and president of the Kiel Institute for the World Economy. The interest rate turnaround is “a glimmer of hope” for the real estate market. In 2023, the market in Germany will have seen the sharpest price slump in 60 years.