Interest rates and the construction sector: the link

Salam and dear all, In my posting on 29th July 2009 Interest rates stays at 2% students asked what does lower interest rates mean to the construction sector. The following represents my attempt at answering the question: 1. Lower interest rates means that costs of borrowing money is lower (interest rates is the most critical components of the costs of borrowing); 2. Lower interest rates also mean that returns from savings is also reduced; thus making it less attractive for people to deposit money in fixed deposits; 3. Items 1 & 2 above would (theoretically) in turn enable (more) people to borrow (more) money (although their income stays the same) and invest in properties (as owner-occupier, owner but not occupier including for the purpose of speculation). 4. But of course investing in properties is not the only option as people may want to invest in other modes such as in shares, etc. 5. The situation in 3 above would in turn improve demands for properties. 6. Increases in demands for properties would in turn enable developers to consider building new properties (or to refurbish/renovate) in order to meet the expected increases in demands. 7. The above phenomena would therefore be good for the construction sector as increases in demands for properties mean more properties would be constructed... construction activities lead to availability of jobs for workers and professionals, demands for construction materials, plant and equipment, etc. 8. But of course there are other factors that must be considered such as economic cycles, taste and preference, government policies, etc. Students should refer to basic texts on economics, property investments, etc or talk to your economics lecturers. Wassalam.