Saturday, September 23

Interest rate hike a slight negative to property sector


KUCHING: While the strong property loan application in June 2022 is positive to the sector, analysts note that the hike in interest rate and expectation of further interest rate hike are a slight negative to the sector.

To recap from Bank Negara Malaysia’s monthly highlights and statistics in June 2022, under the banking system, total loans applied for real estate amounted to RM46.5 billion in June 2022.

“Property loan application growth returned to positive territory in June after two consecutive declines in April and May,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) gathered in its property sector update.

“Note that total loan application value in June 2022 is at multi-year high which we think could be due to better buying sentiment and pent-up demand post reopening of economic activities.

“Besides, we think that the higher liquidity from EPF withdrawal in April 2022 may have helped support buying interest on properties.”

However, MIDF Research recapped that Bank Negara Malaysia raised its overnight policy rate (OPR) by 25 basis points to 2.25 per cent on July 6, 2022.

“The hike in OPR is slight negative to property sector as that would increase house instalment of property buyers marginally and reduce affordability of property buyers.”

The research arm estimated housing loan instalment for loan of RM500,000 to increase by approximately three per cent for every 25 basis points increase in OPR.

“Nevertheless, the slight negative from interest rate hike is expected to be partly cushioned by government incentives to support buying interest.

“Government announced recently i-MILIKI program which offers a 100 per cent stamp duty exemption for first-time homeowners who purchase properties priced RM500,000 and below.”

Overall, MIDF Research saw the normalisation of interest rate with expectation of further OPR hike could drag slightly on property demand going forward.