The potential for future rate cuts to counteract a global slowdown caused by the coronavirus is a silver lining for Japan’s major real estate developers. As interest rates are slashed further, borrowing costs are expected to remain low for developers and home buyers.
Japan’s economy shrank 1.6% in the 4th quarter of 2019. As the virus hits the tourism and supply chain sectors, the current quarter is likely to see a further fall in GDP pushing the country into a technical recession.
While the coronavirus continues to impact economies across the globe, central banks in several countries are signaling a shift to quantitative easing. On March 2, the Reserve Bank of Australia cut the official cash rate by 25 basis points to 0.50%. The same day, the Bank of Japan promised to ensure stability and support the economy through the purchase of assets in the coming weeks. The following day, the US Federal Reserve cut the benchmark interest rate by 50 basis points. The Hong Kong Monetary Authority quickly followed suit, with a 50 basis point cut.
On March 4, Japan’s 10-year government bond interest rate was sitting at -0.145% after briefly entering positive territory in January. In August 2019 it reached a historic low of under -0.28%. Fixed-rate home loans tend to follow movements of the long-term government bond yields. If yields are likely to remain low in the near future, it is also likely that home loan interest rates will remain at record lows. In March, the prime rate for a 10-year fixed-rate home loan at Mitsubishi UFJ was 0.65%.
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