BRIEFING: Age of low interest rates to end within 12 months

Interest rates are likely to begin rising again in the next 12 months, tempering the recovery of Europe’s property markets, experts told PropertyEU’s Germany and Europe outlook briefing in Hamburg.

Daniel Ajzensztein, a partner with law firm Taylor Wessing, said investors should be prepared for interest rates to turn at the end of 2015 or the first half of 2016, led by the US Federal Reserve.

The exact timetable will depend on how long the Fed tolerates the rising value of the dollar, which in turn is related to the overall performance of the US economy, but Ajzenstein said an increase in the medium term was inevitable and would trigger a readjustment of asset values in Europe.

‘It is basically a little bit like in the theatre when you’re waiting after the large break for the performance to resume, you will hear that when the bell rings you have to move,’ he said.

Daniel Ajzensztein: Property investors should watch for interest rate turn

‘When that happens it is pretty clear that the discount in future cash flows is no longer zero but two or three per cent, which will definitely lead to a decrease in asset values, or you could say to a better risk pricing of asset values compared to what you have now, which is from my point of view clearly not a risk adjusted pricing.’

In his keynote speech, Catella’s Thomas Beyerle said European Central Bank president Mario Draghi was weakening the euro through quantitative easing, creating a recovery based on borrowing that carried a number of risks. High public debt, running at an average of 96% of GDP across the eurozone, leaves little room for fiscal easing. The fact that there is no precedent for employing QE at a European level in this way also makes the outcome hard to predict, he said.

Thomas Beyerle - Europe Outlook keynote presentation

Beyerle said the ECB’s quantitative easing strategy was good news for investors in the short term, reflected in a 54% rise in investment volume in the first quarter of 2015, but further down the line questions remained about its sustainability.

‘This is not negative, but I’m not really sure if over the next two to five years it’s really positive for us,’ he said. ‘Nothing has really happened that’s written in the textbooks any more, so from the macroeconomic view we are driving a car in a really foggy situation. A situation where we really have no doubt or any proof from looking back in history or at the textbooks. I have my doubts, to be honest, that over the next five years we will have a pretty shiny environment on this.’