As previously reported, the Central Bank has been hinting for quite some time now that they will be increasing interest rates. At that time many economists are in doubt that the central bank would do that in the near future. But if it does happen, it will greatly impact both housing and commercial real estate sectors even if the rate increase is not shockingly high. In line with this, there have been reports saying that the U.S. interest rates were expected to increase by the end of the year. A recent report shows that the Federal Reserve's interest rate hike, the first one in almost a decade, did happen as expected.
According to the Real Deal, the commercial real estate market is fearful that the rate increase just marked the start of gloomy future. It was reported that prior to the rate hike, this market has been seeing price growth of at least 10 percent in 33 straight months, which secured returns from office building and luxury hotels. Analysts believe that now may be the right time to sell as appreciation in property values are unlikely in the future.
According to Bloomberg, commercial-property debt analyst Tad Philipp at Moody's Investors Service said, "A lot of the smart money is saying it's a better time to sell than to buy. The warning light is on that the rate of appreciation is poised to decelerate."
The real estate market has been boosted for years by cheap debt, according to Real Deal. The rate increase is feared by many to be a sign that the good times in real estate are over. However, a few may still be optimistic.
Spencer Levy, an executive managing director at CBRE Group Inc., believes that rising rents and growing economy can validate higher prices even if interest rates climb up. According to Bloomberg, he noted the new law that eases taxes levied on investments in U.S. real estate by foreign individuals or groups. Thus, Levy said, "Equity capital can provide a counterbalance to increasing costs of capital."
