KUALA LUMPUIR: The government and Bank Negara Malaysia should freeze any interest rate increases as bad debts will rise and costs are increasing further, thus affecting people's ability to make a living.
Non-performing loans (NPLs) would affect the country's economy if they continued to climb, according to Sarkunan Subramaniam, group managing director of Knight Frank Malaysia.
"Another significant problem the government will have to deal with is the increase in NPLs. The banks must manage their present NPLs and take action if that number increases. The government will need to keep a tight eye on the banks' NPLs," he told the New Straits Times (NST).
Bank Negara's Monetary Policy Committee (MPC) on Nov 3 raised the Overnight Policy Rate (OPR), which affects loan interest rates, for the fourth time this year.
The OPR was increased by an additional 25 basis points (bps) to 2.75 per cent. This is similar to OPR hikes that were previously announced on September 8, July 6, and May 11.
Sarkunan said borrowing money for a home purchase was becoming more expensive the higher the OPR was set. Borrowers of existing loans would feel the pain as they were required to make larger payments.
AmBank equity research analyst Khoo Zing Sheng said Bank Negara was expected to raise the OPR by another 25 bps to 3.0 per cent in early 2023.
"Our in-house economists are anticipating Bank Negara to raise its OPR by another 25bps in early 2023, pushing the OPR to 3.00 per cent. This will bring the interest rates to the pre-pandemic level," he said.
Khoo said the interest rate hike would dampen consumer sentiment, particularly under the current inflationary environment.
He said based on the firm's sensitivity analysis, monthly installments for a property purchased at RM500,000 with 90 per cent loan financing would increase by RM66-RM69 or 3.3 per cent to 3.5 per cent for every 25bps hike.
"Property transaction volume and OPR movement have historically been inversely correlated. However, for those buying for their occupation, especially in the Klang Valley area, we expect the demand to improve gradually following the gradual recovery in the economy in the post-pandemic period," he told the NST.
Khoo believes that certain developers, particularly those in advantageous locations, will continue to perform well as long as they focus on affordable housing, with young buyers, small families, and first-time homebuyers constituting the majority of their target clientele.
He said based on NAPIC data, there had been an annual increase in both the residential and commercial sectors because of the low base that was registered in the first half of 2021.
"With the concern on sales for higher price property under the current inflationary environment, we understand some developers have deferred the launches of higher-end products to the later year," he said.
The residential overhang units reduced to 34,092 in the second quarter of 2022, from 35,592 units in the first quarter of 2022, possibly due to fewer launches this year.