Cooling Measures By Bank Negara Near Imminent

With the possible (and some say near-imminent) curbing of DIBS and also possible increase in Overnight Policy Rate by Bank Negara, a cooldown in the property market may be on the cards for the rest of the year (see GoodPlace.my’s coverage last week, here and here).

bank-negara-malaysiaThe recent news on the winding down of the US Fed’s bond-buying program (a whopping $85 billion per month – see WSJ report here) has “spooked” the markets, and in particular, interest-rate dependent verticals such as real estate. In fact, we have already felt some of the effect with the sell-down of property stocks in the Bursa for the past week. This was in sharp contrast with the rally of property stocks just right before the recently concluded general election.

Revision of the Overnight Policy Rate?

The Overnight Policy Rate (or OPR) has been unchanged at 3% since mid 2011, and indications are that this will stay unchanged at least for the rest of the year. However, with the tapering off of the US Federal Reserve’s bond-buying activities the interest rates are set to go up.

Given that the current bull run of the property market are largely fueled by low interest rates and high liquidity a correction in the property prices may be in the cards. However, prices will not decrease sharply as the fundamental demand for housing still remains solid. We do expect speculative transactions to somewhat reduce especially in the urban areas and in specific pockets such as high rise luxury apartments. This is exacerbated with the curbing of DIBS which would further filter out speculators who seek to “flip” properties from new launches.

Any intervention by the regulators would bound to have at least short-term repercussions as we have previously seen with the introduction (in 2011, and subsequent increase in 2013) of the Real Property Gains Tax (RPGT) and the 70% Loan-To-Value (LTV) lending criteria 1. Historically, these dampening controls typically last about six months as buyers and the developers adjust to the new circumstances.

While much of the talk around the cooling measures are speculative at this point (pardon the pun), here’s the key takeaways for our GoodPlace.my readers:-

Update: July 5th – The Singapore government has imposed new curbs in order to cool down the property market – buyer’s monthly loan repayments must now not exceed 60% of their monthly income. Now given that interest rate which is at all time low (which could be hiked up soon enough!) it seems that this new restriction would not be sufficient in stopping the price uptrend of Singapore properties. But we’ll see.

  1. Bank Negara lowered down the LTV ratio from 90% to 70% in 2011 to curb excessive speculation
  2. I totally made this name up. Sebarang kesamaan adalah tidak disengajakan.
About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

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