By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News. June 11, 2025. Article no 1554.
The European Central Bank (ECB) cut its key interest rates by 25 basis points on June 5, lowering the deposit facility rate to 2%, marking the eighth rate cut in about a year. This decision was based on the updated assessment that inflation is currently around the ECB’s 2% medium-term target and the outlook that inflation will settle near this target on a sustained basis.
The ECB’s new baseline projections expect headline inflation to average 2.0% in 2025, dip to 1.6% in 2026, and return to 2.0% in 2027. Inflation excluding energy and food is projected to average 2.4% in 2025 and 1.9% in 2026 and 2027. These projections represent a downward revision from March mainly due to lower energy price assumptions and a stronger euro.
The rate cut aims to support the economy amid global uncertainties and trade tensions, which are weighing on business investment and exports. However, factors such as rising government investment in defense and infrastructure, higher real incomes, and a robust labor market are expected to bolster growth and household spending, making the economy more resilient to global shocks.
The ECB emphasized a data-dependent and meeting-by-meeting approach going forward, without pre-committing to a specific rate path, and signaled readiness to adjust all instruments as needed to ensure inflation stabilizes sustainably at the 2% target and to preserve smooth monetary policy transmission.
In summary, the ECB’s recent rate cut is intended to help ensure inflation does not fall persistently below the 2% target while supporting economic resilience amid ongoing global challenges.
What does it mean for real estate ?
The ECB’s recent rate cut to 2% generally supports the real estate sector in several ways:
Lower borrowing costs: The rate cut reduces financing costs for mortgages and real estate loans, making it cheaper for households and investors to borrow. This can stimulate demand for residential and commercial properties as financing becomes more affordable.
Improved financing conditions: With more favorable financing conditions, developers and investors may be more willing to undertake new projects or acquisitions, supporting construction and transaction activity in the real estate market.
Rental growth and income stability: According to recent outlooks, European real estate is expected to benefit from ongoing rental growth, particularly in good-quality assets like residential, logistics, and core offices. This income growth, combined with stable or improving capital values, supports total returns in the sector.
Positive market momentum: Despite some risks, the outlook for European real estate returns has improved with signs of increased transaction volumes and stabilizing yields. Lower interest rates help maintain investor appetite for real estate as an asset class, especially given the income yield advantage over bonds.
Household impact: While households generally have slightly negative net interest income (paying more on loans than they earn on deposits), the easing of rates can ease mortgage payment burdens, supporting household spending capacity and demand for housing.
In summary, the ECB’s rate cut is likely to bolster real estate markets in the euro area by lowering financing costs, supporting rental growth, and encouraging investment activity, which together help sustain property values and returns amid moderate economic growth and inflation near target.
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© Copyright 2025 – Eurasia Business News. Article no. 1554.
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