Who will have more influence – the EU or the US?
Although the latest inflation indicators make further interest rate hikes unlikely, it is still quite bold to talk confidently about the prospect of a rate cut. Despite the fact that inflation rates are stabilizing little by little and the European zone is approaching the set limits, the situation observed in the United States of America is not so favorable for the downward movement of the interest curve.
“As normal inflation rises in the US, the same trends are observed in Europe, but we see a different picture at the moment – inflation in our region has decreased to 2.4%, while in the US it is still higher and has even risen to 3.5%.” – observes L. Žilinskas.
In contrast to Europe, the effect of higher base rates on inflation in the US did not have the immediate desired result. As the finance specialist observes, interest rate hikes have had a more pronounced impact on real estate, but overall consumption has been resilient. Therefore, despite the fact that the US central bank has been talking about a possible interest rate cut for some time, such a scenario is unlikely when the inflation rate is rising, so the unlikely scenario – an increase in interest rates – cannot be ruled out either.
Despite the fact that inflation has been consistently decreasing in Europe recently, it should be remembered that it has not yet reached the target of 2% in both Europe and the United States. goal, so it is still too early to draw only positive interest rate reduction scenarios – says L. Žilinskas. – Although the current situation could change the historically established practice, when Europe follows the direction of US interest rates, the option should not be ruled out that US monetary policy decisions will continue to influence decisions on the further EURIBOR level. In this case, we should not expect interest rates to be lowered soon and at a high pace.”
High EURIBOR – can real estate owners and developers benefit from this?
The EURIBOR interest rate, which has reached record highs in the last 15 years, and high inflation have become quite a challenge for the real estate market – as the population’s ability to purchase housing has decreased, the real estate sales market has been forced to slow down, but this potentially creates favorable conditions for the development of new projects and real estate rental activities.
“High interest rates or an increase in the price of money inhibits the development of real estate and there is a natural shortage of real estate in the market, and due to supply exceeding demand, already developed projects can generate higher returns. Also, due to the slowdown in market sales, there are opportunities to develop various real estate projects, which would potentially generate higher than average returns”, explains the head of financing of “InRento”, but it is not advisable for those considering to buy real estate investments without a clear plan.
Although investments in real estate rental still remain one of the most attractive forms of investment among Lithuanians, unrelenting interest rates can become a difficult burden to bear. Moreover, successful investment in real estate is not as simple as it may seem at first, because in order to achieve a stable return, you need to know many different aspects.
“For a long time we were used to ‘free’ money, but it seems that those days are over. Those who want to successfully invest in real estate should carefully consider their decision, because we will probably never return to the era when interest rates reached 0%. A more attractive option for today is to invest your money with the help of specialists who know their work and are able to find good deals even in difficult market conditions, – says L. Žilinskas. – InRento, an investment platform for rental projects, offers the opportunity to invest your money in the real estate market without purchasing a home, by financing projects carried out by professionals. The numbers speak for themselves – in a few years, we have attracted more than 24 million euros of investments, the average annual return on investment reaches more than 11%, and even in a difficult situation on the market, we do not have a single delayed project and we delight investors with higher than planned project returns.”
