Although the European Central Bank (ECS) left the interest rate unchanged at 4%, in less than a month and a half the Eurobor interest rate (the European prime rate) dropped by 13 %. From a level of 4.05% at the end of November 2023 to a level of 3.53% at the beginning of January 2024. All this against the background of the drop in the average inflation in Europe to the level of 2.4% (in Spain 3.35) and it is expected that during the year 2024 the ECB will begin to reduce the interest rate at a moderate pace. This situation creates opportunities for real estate investors in Spain to acquire high-yielding transactions and fix them for the long term.
Euribor interest - 12 months. A drop of more than 13%
Take advantage of the high interest rate: how to determine the market conditions before the expected interest rate drop
The aggressive interest rate increases in Europe that began during 2022 led to price drops in the yielding property market. The reason for this is that high interest rates produce risk-free investment products with higher interest rates, which obligates property sellers to increase the sales yield (Cape Rate) by lowering the price, all this assuming that the rent remains unchanged. The expected drop in interest rates creates an opportunity for real estate investors to purchase properties today and sell them within a few years. The premise states that lowering the interest rate will lead to a decrease in CAP and consequently to an increase in the value of the property. That is to buy cheap today and sell in a few years at a more expensive price.
Buy today and enjoy the decrease in financing costs
In addition to the possibility to purchase today and enjoy low purchase prices, the financing interest rates, which are usually linked to the Eurobor, are expected to decrease. As a result, entrepreneurs will reduce financing costs and will be able to enjoy a process of increased profitability for the duration of the investment period. However, investors must remember that the world of economics does not always work according to predictions and a change in the trend in the global economy may produce different and even opposite processes from those listed in this article.