News: OPR Cut To Have Limited Impact On Property Sector

May 10, 2019

While the latest overnight policy rate (OPR) cut may spur property demand, CGSCIMB believes that it would only have a negligible impact on the property sector.

“Homebuyers’ purchasing power would likely increase in tandem, but we expect the upside to be limited, especially for properties in the affordable range of RM300,000 to RM500,000,” it said as reported in The Star.

“Our sensitivity analysis shows that every 25-basis-point (bps) cut in the borrowing rate would reduce the monthly housing loan instalment by only RM32 to RM69, or raise a buyer’s eligible loan amount by RM3,000 to RM15,000.”

READ MORE: How is OPR related to Base Lending Rate and can affect a property seeker? 

It noted that while property buying sentiment would likely improve on the back of lower loan instalments, it could be offset by the muted gross development product (GDP) growth as well as the slowing household income trend.

“For instance, the previous interest rate cut of 25bps in July 2016 did not translate into higher property transaction volumes, as we witnessed negative volume growth in 2016 to 2017.”

Bank Negara on Tuesday reduced the OPR by 25bps to three percent. Historical trends show that this will likely result to banks slashing their indicative lending rates.

“We estimate that every 25bps reduction in borrowing rates would reduce the monthly instalment for mortgage loans by one percent to three percent, depending on the loan tenure.”

CGSCIMB maintained a neutral outlook on the property sector, with Sime Darby Property Bhd continuing to be its top pick.

“We do not see much room for housing loan growth, given the existing low interest rate environment, limited affordability and higher property prices (three percent year-on-year in 2018). We expect the housing market to remain challenging in the near term, unless there is a meaningful surge in household income or a decline in house prices,” said the research house.


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Michael Khong
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