THE MALAYSIAN RESERVE. 15TH FEBRUARY: The central bank’s recent pause in rate hike should augur favourably for overall housing demand, more so for the affordable to mid-range properties where buyers are more interest-rate sensitive.
A local equity research house said that the rate hike pause also provided a much-needed breathing room for developers with high debt levels denominated in ringgit.
In a note released on Feb 7, HLIB Research termed the Bank Negara Malaysia (BNM) move as perhaps the “most significant development” for the property sector.
On Jan 19, BNM announced that it was maintaining the Overnight Policy Rate (OPR) at 2.75%, allowing it to assess the impact of the cumulative past OPR adjustments, given the lag effects of monetary policy on the economy.
The central bank said at the current OPR level, the stance of monetary policy remained accommodative and supportive of economic growth.
“Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook.
“The Monetary Policy Committee will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth,” it said in a statement.
HLIB Research said that the BNM’s rate hike cycle post-pandemic is not unexpected by the market and homebuyers, given that historically the OPR had always hovered around the mean range of 3%-3.25% and as such, home buyers are unlikely to factor in a low-rate environment as their base case in their home purchasing decision.
However, it said the rate hike pause this time is consequential in the sense that it signals a deceleration in the rate hike pace and an increased probability that the terminal OPR rate may end at the lower range of 3% (instead of 3.25%).
In a separate report, Maybank IBG Research noted that mortgage holders and property developers would have breathed a collective sigh of relief when the central bank decided to hold the OPR steady rather than hike by another 25 basis points (bps) per consensus expectations.
Against an already-challenging backdrop of household debt-to-GDP at an elevated 84.5% as at end-1H22 (record high: 93.1% as at end-2020) and broad inflation pressures, it said rising interest rates further pressure households by eroding disposable incomes and property affordability.
It is estimated that every 25bps increase in loan financing cost results in an estimated 3.5% rise in monthly mortgage instalment, to RM2,179, assuming 90% margin financing and 35-year loan tenure for a property priced at RM500,000.
“While developers of course welcome BNM’s ‘pause’, shoring up end demand is but one of their many concerns,” it added.
It noted that supply chain disruptions and labour shortage issues continue to weigh, on top of the persisting existing oversupply issues faced across the country in most property sub-segments.
As such, it said some developers have planned to slow down their new launches in 2023 to manage project deliverability issues that could result in higher costs and earnings risks.
Notwithstanding a generally subdued outlook for the broad property sector, the research house said some sub-segments and locations are, nonetheless, showing promise.
In the industrial properties segment, it said developers have been turning increasingly positive on the industrial property and parks segment given rising e-commerce activities, investment diversion from China on escalating US-China tensions and limited supply.
It noted that Eco World Development Group Bhd is looking to acquire new landbank after its industrial property sales jumped by more than 1.5 times year-on-year (YoY) to RM753 million in FY22 while Sime Darby Property Bhd has acquired 949 acres (384ha) of agricultural land for conversion for RM618 million or RM15 per sq ft in early December 2022.
As per its recent visit, it said Batu Kawan Bhd’s property developments have become more mature with a growing population base and more amenities like IKEA Batu Kawan, shops and colleges.
It noted more factories, both local and multinational corporations, are opening in the Batu Kawan Industrial Park, fueling housing needs.