Juwai Views OPR Rate Hike Will Leave Housing Market Steady

Online property platform, Juwai IQI today released comments from the company’s Co-Founder and Group CEO, Kashif Ansari, on the impact of Bank Negara Malaysia’s move to increase the Overnight Policy Rate increase on 3 May 2023.

What happened and why?
Juwai IQI Co-Founder and Group CEO Kashif Ansari said:
“Bank Negara Malaysia increased the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent. “The need to raise rates again reveals the fundamental strength of the Malaysian economy in 2023. The Bank expects further economic expansion due to domestic demand, higher employment, a pickup in tourist arrivals, and spending on multi-year infrastructure projects. “It’s much better to have a strong economy and need to raise rates to keep it from overheating
than to have a sputtering economy that needs policy stimulus. “Today’s new rate is still 25 basis points lower than the 3% OPR rate we had in 2019.”

How real estate industry is reacting?

“Higher rates make purchasing and developing housing more expensive, but we believe the real estate market can absorb this increase. For buyers, the higher expense of servicing a mortgage is offset by many families’ better household financial circumstances.

Impact on buyers?
“How this affects the typical homebuyer will depend on their circumstances. This 25-basis-point increase in the OPR could increase the interest rate on a typical mortgage by around 0.25%. “For a homeowner with an RM500,000 mortgage at 3.5% and a remaining term of 20 years, a 0.25% increase in interest rates would lead to monthly mortgage payments climbing by about RM124 per month.

Impact on developers?
“This move will increase the cost of borrowing for real estate developers. Higher rates will raise the bar that projects must hurdle before starting construction. We could see a moderating in the number of projects that are planned or start construction over the next six months. “In 2022, construction started on 98,000 landed and hi-rise residential units and, by the end of the year, just over 89,000 units were in the pipeline for future construction.”

Impact on housing prices?
“We think the Bank is determined to rein in inflation and bring the economy to a soft landing where growth and inflation are balanced. Growth prospects are resilient, even with this latest rate rise, and growth will support the housing market.

“We believe the housing market will remain robust, prices will moderately increase, and demand will continue to grow.”All the housing market indicators have been positive over the past three quarters. Transaction volume is up, the House Price Index is up, and the overhang is down. We are confident this positive trend will continue in the second quarter.”

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