You’ve got a dream home in your sight, and you know that it ticks all the right boxes on your checklist. But before you can begin the process of owning it, you’re going to need to get financing for it!
So, you begin shopping for the best housing loan that’ll help you seal the deal. However, you come to realise that different banks offer different interest rates.
If you’re wondering how the financial institutions determine those figures, it’s something that’s based on the Overnight Policy Rate (OPR), which is set by Bank Negara Malaysia (BNM). It’s designed to ensure a stable and liquid banking system in the country.
When BNM decides on a particular rate, the rest of the banks will have to follow suit, whether it means an increase (more expensive to borrow money) or decrease (cheaper to borrow money).
According to PropertyGuru’s Malaysia Consumer Sentiment Study H2 2020 report, over 80% of respondents were expecting a reduction in the home loan interest rate, due to the sluggish economy. And it would seem like they got their wish.
In 2020 alone, BNM cut the OPR by four times so far, in an effort to cushion the negative impact on the economy from the COVID-19 pandemic. It went from a rate of 3.00%, all the way to 1.75%, the lowest level on record!
We’ve observed that the many reductions of the OPR since January 2020 may have had some effect on the property buying behaviour of Malaysians, so we decided to take a closer look!
Trend #1 – Increase In Interest For Properties Below RM700,000
Looking at PropertyGuru’s data (taken from the ‘For Sale’ listings on our site), higher price brackets are receiving more interest, with properties in the following price range reporting the highest increase Month-on-Month (MoM) in terms of property enquiries:
- RM501,000 – RM700,000: +56.0% MoM
- RM301,000 – RM500,000: +39.6% MoM
- RM151,000 – RM300,000: +31.5% MoM
People are now feeling like they have the ability to look for slightly pricier properties. This could be particularly true for those with healthy finances, and can take advantage of the current low rates.
As such, they realise that affording a property in a central location, which commands a higher price tag, is no longer just a far-off dream.
The types of properties which are currently most popular amongst home seekers would also seem to support the price brackets:
- 2-storey terraces with +47.1% MoM
- Apartments with +46.6% MoM
- Condominiums with +22.0% MoM
According to the same report, most Malaysians are looking to find a home for their own stay and/or enhancing their quality of life.
They have quoted these reasons for purchasing a new home: Greater convenience (30%); personal space (30%); and space for children/parents (29%).
However, purchasing a property for investment purposes still remain a topmost reason for new home buys, which would explain why high-rise developments consistently rank in the top 3 (they generally have gross rental yields from a little above 2% to 5%).
Trend #2 – Major Areas Seeing A Rise In Popularity Among Home Seekers
As Malaysians would want to get a home that’s not only the right fit for their needs and lifestyles, but can also offer opportunities for better return on investment (ROI), the lower interest rates mean that they can set their sights on major cities.
PropertyGuru Tip
Remember folks, the OPR cut is not permanent! The rate can fluctuate at any time, based on BNM’s decision, and you should be financially prepared for an increase in the future.
Thanks to the presence of well-established (and numerous!) amenities, the excellent network of infrastructure, as well as job opportunities, the following states have enjoyed an increase in interest Month-on-Month (MoM) in terms of property enquiries:
- Selangor (+45.7% MoM)
- Kuala Lumpur (+33.7% MoM)
- Johor (+22.4% MoM)
Digging deeper into the data to determine which are the areas that contributed to the states’ popularity, we see that these are the most popular areas for the top states:
- Selangor:
- Shah Alam (+52.2% MoM)
- Petaling Jaya (+48.8% MoM)
- Puchong (+27.1% MoM)
- Kuala Lumpur:
- KL city (+32.5% MoM)
- Bukit Jalil (+28.7% MoM)
- Cheras (+25.6% MoM)
- Johor:
- Johor Bahru (+26.2% MoM)
- Pasir Gudang (+18.0% MoM)
- Iskandar Puteri (+3.30% MoM)
Trend #3 – Lower Property Prices Witnessed Throughout The Country
Due to the OPR cuts throughout the first half of 2020 alone, it was a clear sign that the Malaysian economy wasn’t doing so well.
In fact, Malaysia is now looking at a deflation, where we saw a drop in the Consumer Price Index (CPI) by 2.9% in April – the sharpest in more than 50 years!
With such a drastic decrease in consumer spending as people are tightening their belts, sellers are forced to reevaluate the prices that they put on their properties, and thus have to reflect the gloomy economic outlook.
According to PropertyGuru’s Malaysia Property Market Index Q3 2020 report, when we compare the Year-on-Year (YoY) changes (Q2 2020 vs Q1 2019), there’s been a decline in property asking prices across all 4 major markets:
- Johor: -3.10% YoY
- Kuala Lumpur: -2.52% YoY
- Penang: -1.76% YoY
- Selangor: -0.97% YoY
With property prices lowered, coupled with the OPR cut, it may look like it’s currently an ideal environment to purchase a property, since Malaysians feel like they can afford one if their finances are healthy.
This offers some room for optimism because it points towards a sustained confidence in demand for property, despite COVID-19’s severe economic disruptions.
However, it’s very important to keep in mind that while the OPR may be at its lowest now, it could still fluctuate and rise again once Malaysia’s economy recovers.
This means that if you’re not financially prepared for the sudden (think: overnight!) increase in the OPR, which will cause you to have a higher monthly repayment amount, you’re going to find yourself struggling to make ends meet.
If you’re thinking of choosing a residential property for your next investment, check out these 6 Main Types Of Residential Property Investment to help you decide!
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Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.