Benefits and risks of an 8 percent discount rate

Benefits and risks of an 8 percent discount rate

Recently, the head of the National Bank announced that the interest rate in 2020 may be reduced to 8%. However, earlier this figure was planned to reach the end of 2021. A low discount rate is an indicator of a stable, well-performing economy. Let’s understand how such a discount rate will affect the real estate market in particular and the economy as a whole.

First, an 8% discount rate will allow banks to issue loans at 10-12% per annum. Accordingly, it will allow to restart mortgage lending in Ukraine, which in recent times all, both developers and buyers, could only dream of.

Second, reducing the interest rate will reduce the yield on deposits. Ukrainians who have become accustomed to high yields on deposits, which in some years have reached up to 25%, at a discount rate of 8% will earn on deposits no more than 3-5%.

Based on the first and second, real estate will be the most reliable, easiest, most convenient, most predictable and understandable way to make money. And if the swings of the T-bills cease, private non-large players can be expected to return to the real estate investment market.

And, thirdly, an active and growing market may trigger unprofessional and unscrupulous players who want to make money, so there is a risk that new construction pyramids will emerge.

Typically, a single indicator has a significant impact on all aspects of the economy, including construction and real estate. But, of course, this is great news that will make a quality breakthrough real estate market and finally turn the delayed demand of Ukrainians for new housing into real.

Andriy Ryzhykov, CEO and Managing Partner of DC Evolution

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