Interest Rate Is Down (OPR Cut)! Should I Buy A Property Now?

PropertyGuru Editorial Team
Written by Charles Tan from kopiandproperty.com
Bank Negara Malaysia (BNM) has decided to cut the Overnight Policy Rate (OPR) for the FOURTH time in 2020 alone:
In simpler terms: if you take out any loan after the OPR decrease, it’ll cost less for you because of the decrease in the loan’s interest rate!
But as of May 2022, BNM has announced the revision of OPR, and it increased by 25bps to 2.00%.

PropertyGuru Tip

The OPR is an interest rate that a borrower bank has to pay to a leading bank for the funds borrowed. When OPR goes up, banks will have an increased cost of borrowing, and vice versa if OPR comes down.

This is considered positive news and may have started the steps towards a better property market, moving forward.
Actually, if we understand a little bit about this rate cut, it’s more of a pre-emptive measure by BNM to ensure an accommodative stance for the economy.
In this case, the external environment has shown some weakness in recent times, and thus, BNM hopes to spur domestic consumption so that our forecasted GDP growth by BNM remains intact.
Now, let’s look at how it may affect the property market.

Overhang In Property Market

The value of unsold residential units dropped to RM18.8 billion in the third quarter of 2019, compared with RM19.54 billion a year earlier, according to the National Property Information Centre (NAPIC).
in addition to that, in the 2nd quarter of 2019, the residential overhang stands at an estimated 52,666 units, based on Nawawi Tie Leung Property Consultants Sdn Bhd’s statistics
In other words, the property prices being transacted are actually going down; hey, lower prices, peeps! In other words, the demand and supply of properties is starting to sort itself out.
BNM’s cooling measures, which were meant to slow the rapidly increasing property prices so that household incomes have time to catch up, has started to show a serious bite.
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Developers’ Accommodative Stance

Beyond BNM’s accommodative stance, when we visit any property fair these days, we’re able to see that the developers themselves are more accommodative as well.
For example, their willingness to provide discounts in conjunction with the Home Ownership Campaign (HOC) 2019.
They were willing to be more flexible with regards to the down payment, and even willing to allow qualified buyers to stay first, pay rent, and later turn a portion of the rent into down payment for the home!
If we look back to the periods of 2009 – 2012, these voluntary actions would not have taken place.

Opportunities Do Not Last Forever

As a buyer, we must also be wary of the fact that unsold properties, especially the better ones, will find buyers eventually.
They were unsold because the sentiment is negative and even buyers who think the properties meet their expectations were not willing to buy, YET.
Meanwhile, the unsold properties, especially the overpriced ones or those in a very bad location, will remain unsold for a very long time.
Thus, looking at just the overall percentage without going deeper may give all buyers a false sense of security that they have lots of time to decide.
We must remember that even today, when the right properties at the right prices are launched, they are sold out very soon.
Negative sentiment versus everyone losing their jobs and have no spending power are two very different things.
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Rates Will Help But Product Is Key

In conclusion, the slight reduction of the rates will push the sale of properties up slightly in the near future, but what the cut in rates by BNM will do is on-the-ground sentiment.
When more people start to get active in the stock market, when more businesses think perhaps it’s time to expand their reach, and when more people think keeping all their money in the savings account will yield low returns, the investment activities will then begin to rise.
With this, the negative sentiment may just turn positive and that would really help the property market.
Added to the fact that the new launches of today are far more attractive in terms of prices and features means that buyers must quickly identify good products versus their prices, instead of looking at just the percentage of overhang and conclude that all properties are the same.
That will be the key to property investment. Happy understanding and investing!
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Charles Tan is the founder-cum-executive editor of kopiandproperty.com. He writes from the perspective of a working professional, and views property investment as a long-term decision.
His articles and views have appeared in many national newspapers, magazines and property listing portals.
He has also appeared in TV shows speaking about property investments, and has spoken regularly at various property events.