THE increase in overnight policy rate (OPR) will not impact the local property market too badly, said property analysts.

Bank Negara Malaysia increased the OPR by 25 basis points to 2% last week.

Property analysts said the move will see home loan instalment interest rates rise, but this will affect the property market only a little.

National House Buyers Association Chinese division head Tan Chong Leng said an increase in interest rates will “generally” not affect homebuyers too badly.

“This is because bank mortgage interest rates will still be lower than before the Covid-19 pandemic,” he told The Malaysian Insight.

People do not decide to buy property based on only interest rates, he added.

“It is a combination of factors, including their financial situation following business recovery, lay-offs or salary cuts.”

Though Malaysia is transitioning into the endemic phase and businesses have reopened, many are still recovering from the impacts of the Covid-19 pandemic.

As such, Tan said, property purchases have been sluggish.

Malaysian Institute of Estate Agents president Chan Ai Cheng said the OPR hike will not affect housing market demand as the last hike was two years ago—in July 2020.

“As interest rates have been low in the past two years, it is only a matter of time before an adjustment is made.”

Phillip Research chief strategist Phua Lee Kerk said the move will bring about slightly weaker demand, but added that this is to be expected as property prices are also set to increase following a rise in raw material costs.

“Mortgage loans will become relatively high and, in turn, cause those who wishing to buy real estate to reconsider their move. This may lead to slightly weaker demand.

“However, let us not forget that housing material costs are also rising, and housing prices will rise, too.”

Phua said buyers will have to choose higher property prices in future or higher interest rates now.

“In any case, I believe that (increasing interest rates) will make demand a little weaker. Everyone has been comfortable with low interest rates for a while.”

He advised potential homebuyers to always consider how much they can afford to fork out for a mortgage.

BNM, in announcing the OPR hike on May 11, said the improving labour market conditions and reopening of the global economy have continued to support economic recovery.

The central bank, however, cautioned that the global growth outlook will continue to be affected by the Russia-Ukraine war, Covid-19, commodity price shocks, global supply chain conditions and volatility in financial markets.

Therefore, the OPR hike is meant to mitigate the impact of these factors, it added.

BNM said the OPR rate of 1.75% during the Covid-19 crisis was a record low, but much-needed at the time to support the economy.

The “unprecedented need” then is no longer necessary now, it added.

However, economists said another OPR hike may occur later this year. – May 16, 2022.