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Recent BLR Hike Points to Firmer Property Outlook

 

中文版

 

Property buyers will most likely be undeterred by last week’s rate hike as analysts view the rise in overnight policy rate (OPR) signals the firming up of property prices. Bank Negara Malaysia (BNM) raised its OPR by 25 basis points (bps) to 2.75% last 09/07/2010, Friday after its first rise on last March's Monetary Policy Committee (MPC) meetings.

The central bank said the hike was prompted by the continued global recovery in the second quarter, supported by robust and broad-based growth in most emerging economies, in particular Asia , and a moderate recovery in the advanced economies. The rate hike will be followed by a rise in bank's base lending rates. This would only have a marginal impact on demand sentiment in residential properties. This is because the recent improvement in property sales has been primarily supported by the attractive financing schemes offered by most major developers which, most importantly, included interest-absorption-schemes whereby developers bore all financing costs on behalf of buyers up to vacant possession.

It noted that as some developers offered an additional two years’ zero interest after vacant possession, which implied that buyers who bought such properties would not be deterred by interest rate volatility for the next two to five years, if all else remained unchanged. However, developers that offered such schemes would be marginally affected. Developers who offered such schemes would have to absorb any increase in financing cost on behalf of the buyers for the next two to five years, and will therefore have their earnings margin marginally affected during the period.

We believe that the interest commencing 2009 in mid- to high-end landed properties could possibly be a prelude to the next main theme in the upcoming long-term up cycle early next decade, which could last three to five years, similar to what the years of 2004/05 were for the 2007/08 major up cycle for high-end condos. It added this was due to the fallout in high-end condos in 2007/08 and expectation that the outlook for the sub-segment would be less sanguine going forward have forced the excess capital among avid real estate investors to take refuge in higher-end landed properties, which was the only real estate asset class yet to experience any bubble since the 1997/98 Asian financial crisis.

Additionally, the entry of buyers looking to upgrade their properties to mid- to high-end landed properties appeared to have picked up steam, thus bolstering the performance of this sub-segment of late.

Source: Malaysia Real Estate Agent Website

 

 

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