The real estate industry is the most "zombified" sector, and rate hikes pose a significant risk, according to a consultancy.

• Nils Kuhlwein of Kearney consulting firm stated that there is a significant chance of real estate companies declaring insolvency when interest rates increase.
• In 2020, the real estate sector had the highest number of "zombie" companies and the highest percentage of zombies, according to a Kearney report. If interest rates double, the number of zombie companies could increase, said Kuhlwein.
• Firms that have been in operation for over a decade and generate sufficient revenue to keep their doors open but are unable to meet their debt interest payments are referred to as "zombie companies."

Real estate companies may face insolvency if interest rates increase, predicts a Kearney consulting firm partner.

The global financial crisis of 2008 was initiated by a real estate and housing price bubble and mortgage defaults in the United States, as Nils Kuhlwein highlighted.

The real estate sector has the highest share of "zombie" companies, which are defined as companies that are at least 10 years old and have persistent problems meeting their interest payments, according to the OECD.

A 2021 Kearney report found that companies may face insolvency or an abrupt implosion due to minor external changes such as rising interest rates or a deteriorating economic environment, as examined in the report that analyzed 67,000 listed companies from 154 industries and 152 countries.

The U.S. Federal Reserve is expected to increase interest rates several times this year, ending the era of easy monetary policy in the United States.

According to Kuhlwein, it is "absolutely" possible that the real estate market will face a crisis when interest rates increase.

If inflation remains high and interest rates rise, the number of insolvent real estate and housing development companies will increase, posing a significant risk, he stated.

Nearly 40% more zombie firms could result if interest rates were to double, according to him.

Vulnerable sectors

According to the Kearney report on listed zombie companies, which examined data from 2020, the real estate sector had the highest absolute number of zombies and the highest percentage of zombies.

The real estate industry is the most "zombified," according to the report.

The real estate industry has a higher percentage of zombie companies than other sectors, according to Kuhlwein.

He predicted that these numbers would increase in 2021.

The real estate sector will likely be impacted even more by the ongoing pandemic and its economic consequences, according to Kuhlwein, who believes the industry still has challenges ahead.

Given the semiconductor crisis and supply chain disruptions that plagued auto firms, it is likely that the automotive sector saw an increase in zombie companies in 2021, said the expert.

The number of listed zombie firms increased significantly from approximately 600 in 2010 to nearly 1,800 in 2020, according to the Kearney report.

According to Kuhlwein, if you examine the growth over the past decade, it would be considered an issue based solely on the raw numbers.