There’s a “big risk” of real estate companies filing for insolvency when interest rates rise, according to a partner at consulting firm Kearney.
Nils Kuhlwein pointed out that the global financial crisis of 2008 started with a real estate and housing price bubble and mortgage defaults in the United States.
“What we are now seeing again, 13 years later, is that again, the real estate sector has the highest share of ‘zombies,’” he told CNBC’s “Street Signs Asia” on Wednesday. According to OECD’s definition, “zombie” companies are those that are at least 10 years old and have persistent problems meeting their interest payments.
Minor external changes such as rising interest rates or a deteriorating economic environment can put such companies at risk of insolvency or lead to an “abrupt implosion,” said a 2021 Kearney report that examined 67,000 listed companies from 154 industries and 152 countries.
Wall Street is predicting multiple interest rate hikes by the U.S. Federal Reserve this year, bringing easy monetary policy in the U.S. to an end.
When asked if the real estate market could face a crisis when interest rates rise, Kuhlwein said it was “absolutely” a possibility.