Rising interest rates are slightly negative for the real estate sector
KUCHING: While the strong demand for mortgages in June 2022 is positive for the sector, analysts note that the rise in interest rates and the expectation of a further increase in interest rates are slightly negative for the sector .
To recap monthly highlights and statistics of Bank Negara Malaysia in June 2022, under the banking system, total loans requested for real estate was RM46.5 billion in June 2022.
“Growth in home loan applications returned to positive territory in June after two consecutive declines in April and May,” MIDF research arm Amanah Investment Bank Bhd (MIDF Research) collected in its real estate sector update. .
“Note that the total value of loan applications in June 2022 is at its highest level in several years, which we believe could be due to better buying sentiment and pent-up demand after the reopening of economic activities. .
“Furthermore, we believe the higher liquidity from the ETH withdrawal in April 2022 may have helped support buying interest in the properties.”
However, MIDF Research summarized that Bank Negara Malaysia raised its overnight rate (OPR) by 25 basis points to 2.25% on July 6, 2022.
“The rise in RPO is slightly negative for the real estate sector, as it would slightly increase the home down payment for real estate buyers and reduce affordability for real estate buyers.”
The research arm estimated that the housing loan tranche for the RM500,000 loan would increase by around 3% for every 25 basis point increase in the OPR.
“Nevertheless, the slight negative effect of higher interest rates should be partly cushioned by government incentives to support buying interest.
“The government recently announced the i-MILIKI scheme which provides 100% stamp duty exemption to new owners who purchase properties priced at or below RM500,000.”
Overall, MIDF Research saw the normalization of interest rates with the expectation of a further RPO hike which may slightly dampen real estate demand going forward.