The fourth increase in the overnight policy rate (OPR), which corresponds to a 1 per cent increase, will have a significant impact on the real estate industry, according to Sarkunan Subramaniam, group managing director (MD) of Knight Frank Malaysia.

 

"The economic crisis is already being felt as living expenses rise while earnings remain flat. I think individuals will be affected this time," he told NST Property.

 

According to Sarkunan, the market would experience the effects within the following three to six months.

 

He said people who have existing mortgages will suffer depending on their gearing.

 

"We should give this fourth increment some serious thought. Those who are making a good living and are not heavily geared might not feel the pinch. But a person with a low salary and heavy living expenses will undoubtedly feel the strain.For someone who is only making enough money each month to get by and has a family to support, an increase of RM300 from the first rate hike to the fourth is quite a significant sum," he said.

 

The monetary policy committee (MPC) of Bank Negara Malaysia (BNM) decided to raise the OPR, which affects loan interest rates, for the fourth time this year.

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According to a statement made by BNM on November 3, 2022, the OPR has increased by an additional 25 basis points (bps), to 2.75 per cent.

 

This is similar to OPR hikes that were previously announced on September 8, July 6, and May 11.

 

Sarkunan is suggesting that the government and BNM freeze any interest rate increases as bad debts will rise.

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According to AmBank Research, MPC is expected to increase the OPR by 25 basis points to 3 per cent in early 2023, returning interest rates to their pre-pandemic levels.

 

Khoo Zing Sheng, the firm's stock research analyst, thinks that any additional interest rate increases will depress consumer confidence, especially given the current inflationary climate.

 

"The instalment amount would increase by 2.2 per cent to 2.5 per cent for every 25 basis points increase in the OPR. For a RM1 million credit facility, for instance, the borrower would be required to pay an extra RM130 in instalments every time there was a 0.25 bps increase. The increase is around RM80 as an instalment amount for a credit facility of RM700,000. For a lending facility of RM500,000, it is about RM40 to RM45.

 

"The difference is around RM20 for an RM200,000 loan facility, which is for affordable housing. Even though the sum is small, it still has an impact on the debtors, particularly the B40 and M40," he added.

 

After the third OPR hike, loan requests for the acquisition of residential property remained steady, according to Khoo.

 

"When the OPR was raised in May and July, loan applications for home purchases remained healthy, with the approval rate rising to 43 per cent in July from 41 per cent in June 2022," he said.

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The amount of loans applied for still exceeds RM40 billion, which is more than the average for January through May 2022 of RM38 billion.

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"Over the past 20 years and during the time before the epidemic, Malaysia's OPR has been within the range of 3 per cent to 3.25 per cent. The government only took action and reduced the OPR rate from 3 per cent to 1.75 per cent for around 18 months during the pandemic period. This OPR rate was incredibly low. It is still quite low at 2.5 per cent (or 2.75 per cent today).

 

"I don't think that the rise in OPR rates will have a significant impact on real estate sales. I think the secondary market will be impacted if interest were to have an impact on the selling of properties.

 

"The buyer must pay a 10 per cent down payment, stamp duty, and/or legal expenses when purchasing on the secondary market. However, there are discounts and incentives if you purchase from a developer, therefore the buyer will put down less than 10 per cent of the purchase price," he explained.