Negative Rates Could Hike Prices For Real Estate Investors
In the upside-down world of negative interest rates, real estate investors face a counterintuitive dilemma: borrowing costs actually increase as interest rates fall.
This is a real and growing concern for many property investors given the potential rates have to fall further as central bankers try to drive economic growth, the Wall Street Journal reports. And property investors taking out floating-rate loans are feeling the heat the most right now.
That’s because of the structure of interest-rate swaps. If rates rise, the property firm gets extra payments from its swap counterparts, but if they fall, these extra payments fall.
But not all investors are concerned—the issue only arises from negative rates, and outside of that realm borrowing is still incredibly cheap. [WSJ]