PETALING JAYA: Bank Negara Malaysia (BNM) needs to find the right balance to ensure the overnight policy rate (OPR) does not burden the public, and at the same time encourage a sustainable property sector, said the National House Buyers Association (HBA).
“BNM needs to play a balancing game as setting the OPR too high will result in a higher cost of doing business and lower purchasing power. This could lead to companies laying off staff and a drop in consumption.
“On the other hand, setting the OPR too low can result in excessive speculation in the housing sector, resulting in a property bubble,” warned HBA secretary-general Chang Kim Loong.
He said BNM’s move yesterday to maintain the OPR at 3% was positive for the people and the property sector.
“By not increasing the OPR, the industry including housing developers are hopeful that consumer sentiment will improve, resulting in higher volume and value of houses being bought and sold,” he told FMT Business.
He acknowledged that BNM is in “a very difficult position” as the ringgit has weakened against the US dollar and Asean currencies. “One way to strengthen the country’s currency has always been to raise interest rates to stem the outflow of capital.
“However, BNM needs to find the balance where the OPR does not burden the public. And at the same time, encourage a sustainable property sector that can deliver housing that is affordable to people,” Chang added.
Property market challenges
Though the property players are breathing a huge sigh of relief at BNM’s continued pause, the OPR at 3% still remains a challenge for the property sector.
Bait Al Amanah analyst Yugendran T Kannu Sivakumaran said the property market is likely to face some challenges with the OPR at 3%.
“The property market experienced robust growth in 2022, but it’s unrealistic to expect the OPR to remain at the lows seen during the peak of the Covid-19 crisis.
“Such low rates would lead to uncontrolled inflation, which is not in the best interest of the overall economy,” he told FMT Business.
He said the ones most likely to be affected by the OPR are retail investors and developers who did not lock in fixed interest rates when obtaining loans during the Covid-19 pandemic.
The OPR was raised from 2.75% to 3% in May 2023 and maintained at this level by BNM’s monetary policy committee (MPC) at each of its three bi-monthly meetings since.
Center for Market Education fellow Consilz Tan said the OPR hike in May has affected the property market, especially those servicing housing loans.
She added that BNM’s decision to maintain the OPR shows the country’s inflation rate has moderated, resulting in the easing of cost of land banking for developers.
Tan said economic growth could boost the property market but external factors like China’s weak property market outlook, geopolitical tensions, and commodity prices may hinder the progress.