Property sentiments weaken from rate hike, inflation
KUCHING: Malaysia’s property sector remains challenging as sentiments for the market have weakened following Bank Negara Malaysia’s (BNM) interest rate upcycle as well as the rising inflationary pressure, both of which negatively impact buyers’ purchasing power, analysts observed.
In a report, the research team at Hong Leong Investment Bank Bhd (HLIB Research) said: “The year started off on a positive note as the sector was poised for a recovery in tandem with the economic recovery.
“Nonetheless, sentiment has weakened moving into the second half of 2022 (2H22) following BNM interest rate upcycle as well as the rising inflationary pressure, both of which negatively impact buyers’ purchasing power. In addition, property developers are also facing their own sets of challenges including elevated building material cost, labour shortage and rising financing costs.”
Based on the assumptions of a 30 years loan period and a 10 per cent down payment, the research team estimated that a 25, 50, and 75bps rate hike would increase monthly mortgage instalments by 3.2, 6.5, and 9.9 per cent.
It also highlighted that inflation is also creeping up mainly driven by higher food and transport costs, and this is expected to further escalate in 2H22 due to government’s plan to remove price ceiling of selected staple food items effective July.
“An interest rate upcycle coupled with inflationary pressure would weaken the purchasing power of property buyers,” it pointed out.
As for developers, several of the key challenges have persisted from last year, including elevated building material costs, and labour shortage.
“Property developers will likely be more cautious in their launches under a rising and volatile cost environment as any cost increase is likely to compress their margin. Due to the persistent overhang issue in the property market, this will also put a lid to the pricing power of some developers and as such, they will not be able to fully pass on the rising building material costs.