OPR hike may force property prices down, say analysts

That may also mean higher cost of loans for homebuyers

By IZZAT RATNA / Pic By HUSSEIN SHAHARUDDIN

The prospect that Bank Negara Malaysia (BNM) may increase its base rate from the current 3% may be a strong signal for developers to dramatically cut prices as cost of borrowings go up.

But, it may also mean higher cost of loans for homebuyers.

Analysts recently projected a possible 25 basis points jump in the Overnight Policy Rate (OPR) to 3.25% sometime in early 2018, following signs of hawkishness at the Monetary Policy Committee meeting on Nov 9.

This is happening at a time when homebuyers are struggling to match the asking price for property.

Galen Centre for Health and Social Policy CEO Azrul Mohd Khalib said a large portion of the country’s property market remains beyond affordability to the average Malaysian household and an OPR raise would be a mixed blessing.

“It would be good for prospective buyers if the property prices are lower. On the other hand, it could also mean a hike in loan interest. I believe this only benefits those who have the means, but not for those who depend on loans because there clearly is a severe oversupply of properties out there, but with prices that are beyond the reach of most Malaysians.

“There are of course many other possible factors that can also influence (the OPR) decision, however, the elephant in the room is the gap between managing household and everyday debts and the affordability of the property market that is simply too big,” he said.

The National Property Information Centre revealed that RM12.26 billion of unsold units in the first half of 2017 is mostly contributed by 7,300 units priced at RM500,000 each.

Azrul said the level of Malaysia’s household debts remains worrying and any hike in the OPR will result in costlier loans.

“This change in the OPR may in the long run cause a chain of events that would affect the employment levels, as well as the prices of goods and services.

“Malaysia’s household debt-to-gross domestic product (GDP) ratio was 89.1% in 2015, but by the end of 2016 had dropped to 88.4%. The decision made by BNM was to see to it that this downward household- debt trend continues.

The federal government’s debt rose 5.6% to RM685.06 billion as at end-June 2017, compared to RM648.48 billion last year. The debt percentage of GDP was 50.9% in end-June 2017, compared to 52.7% last year.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the anticipation of next year’s OPR hike may be related to the upcoming general election, as well as issues surrounding the rising inflationary rate that is influencing the cost of living.

With the average monthly household consumption rising by nearly RM500 to RM4,033 in 2016, the recent Department of Statistics’ report revealed that Malaysians are spending 10% more on their household expenses.

The average monthly household expenditure in the urban areas posted a yearly increment of 5.8% from RM3,921 to RM4,402, while rural provinces showed a 5.7% annual increase from RM2,431 to RM2,725.

For that reason, the existing prevailing policy rate is no longer applicable and therefore, it warrants for a hike in rate. Mohd Afzanizam pointed out that a hike in OPR also allows banks to instantly adjust their lending rate, as opposed to the deposits rates, which have the potential to improve net income margins of the banks.

“But financial institutions need to be wary on their available for sale portfolio. And when it comes to financing, the risks acceptance criteria must remain the guiding principle.

It is not so much on the level of OPR, the credit scoring of a particular borrower will determine the success rate of all his or her financing application,” he added.