ECB reduction of interest rate by 0.25% in line with market expectations

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The mid-September interest rate reduction by the European Central Bank of 25 basis points had been widely anticipated. Here is how a cross-section of German real estate market participants reacted to the ECB's move:

Francesco Fedele, CEO, BF.direkt AG

"Today's interest rate cut by the ECB by 0.25 percentage points comes as little surprise to us. As most forecasts see the key interest rate returning to 3.5 per cent at the end of 2024, it is reasonable to assume that there will be two more rate cuts of 0.25 per cent each.

In our view, however, it is still too early for interest rate cuts. On closer inspection, the inflation trend is not quite as positive as the German August inflation rate of 1.9 per cent would suggest. This development is only short-term and is due to the strong fluctuations in energy costs. Inflation could already exceed 2.0 per cent again in September. Furthermore, it is not the German inflation rate that is decisive, but the core inflation rate in the eurozone, which is still well above the central bank's target value.

Although a key interest rate hike only has a delayed effect on the real economy of one to two years, the reaction on the capital markets is rapid. The ECB's interest rate cut could cause the market to expect more inflation again, which in turn causes long-term interest rates to rise. On the other hand, the interest rate cut itself does not have a major impact on the interest rates of ten-year financing, which are crucial for the property market. The ECB is also currently cautiously reducing long-term investments, which also tends to lead to higher interest rates."

Patrick Brinker, Head of Real Estate Investment Management, Hauck Aufhäuser Lampe

"The current interest rate level is healthy, so we can basically work economically in the property sector. One thing is clear: the old interest rate levels are history, even if the ECB has lowered key interest rates today and the USA will do the same. This realisation has also taken hold on the property markets. Prices have now bottomed out. This means that now is the time for long-term investors to start making new investments and stop waiting. Family offices and international investors are already one step ahead and are making their first investments."

Peter Axmann, Head of Real Estate Clients, Hamburg Commercial Bank

"Today's interest rate decision by the ECB confirms the expectations of market experts and is already priced into the current interest rate level, so that no significant change in financing costs is to be expected immediately. Nevertheless, the interest rate cut is good news for the property sector because investors can now be more certain that the interest rate peak is behind us for the time being and that purchase prices can be calculated more reliably again on this basis. This will contribute to a gradual increase in transaction volumes."

Prof. Dr Felix Schindler, Head of Research & Strategy, HIH Invest

"By lowering the deposit rate again by 25 basis points, the ECB is living up to the expectations of market participants and its own wording. However, the road ahead will not be a walk in the park - price developments in the services sector in particular will remain challenging for the ECB and the medium to long-term inflation path towards the ECB target. On the property markets, the interest rate cut will provide a positive psychological boost and will contribute to further market stabilisation, even if it is already priced in - as on the capital markets."