Will rising interest rates roil the property market in 2022?
Interest rates in the US may have to rise sharply to fight inflation says the Economist. Core inflation in the US has spiked to 6%, but the business magazine does not expect the low interest rate era to end. Booming US, Australia and UK stock and property prices have benefited from low interest rates in 2021. But higher interest rates in the offing will probably roil rising US property prices.
Despite historically low mortgage rates of BLR-3.5%, a projected strong recovery in the Malaysian property market has stalled since the end of Putrajaya's HOC campaign. https://lnkd.in/gxPak3ms According to Kay Hian UOB, in January 2022 the mortgage application rate and approval value fell 22% and 13% MoM. The stockbroking house thinks the drops are the result of the end of HOC in December 2021. However, mortgage approval rate inched up by 4 percentage points to 40% in January 2022, amidst the clearing of backlogs due to earlier lockdowns. But the stockbroking house notes the the mortgage approval rate remained flat at 35% in 2021 , one of the lowest rates in history.
What is going to happen to property investment sentiment if Bank Negara Malaysia follows the Fed's lead to hike interest rates higher? Will B40 property owners - some have already seen incomes drop by more than 10% due to the pandemic- be able to service higher loan installments if interest rates in Bolehland rise by say 1-2%? Even M40 property owners will feel the brunt if interest rates rise sharply. According to a report by the Department of Statistics in 2021 some 20% of M40 households slipped down to B40 because of the pandemic in 2020.
In 2000 when I first took out a housing loan from a foreign bank to finance my first KLCC investment property, I remember I paid an interest rate of 4% fixed for the first year. In the second year my interest rate was adjusted up to BLR +1%. In 2001 BLR was I think at least 6%. So from the second year, my mortgage payments were repriced to 7%. That's a lot higher than the banks’ current mortgage lending rates (BLR -3.5%)
I wonder how many property investors who took out multiple housing loans three years ago to buy high density new projects at PJ section 13 (eg Ryan and Miho) or Sentul Pasar (M Ventura) will be able to service their monthly loan installments in 2022. The current asking rents for Ryan and Miho units on property portals look high compared to 5* KLCC apartments are fetching. IMO the asking selling prices of RM600 PSF for these leasehold properties at PJ Section 13 also look high when you compare them to KLCC freehold condominiums going for auction at RM600-650 PSF.
"J" my hard working auctions real estate agent keeps sending me WhatsApp messages like -” Only RM616 PSF for prime KL properties. Immediate RENTAL income. Only 4 mins to Bukit Nanas monorail station" will no doubt be pleased if interest rates sharply increase. More business for him and his cohorts of auction agents.
A September 2021 blog post in my high end property blog aka 360 KLCC predicted auctions of high end KLCC properties will increase in the Year of the Tiger. You might want to check it out here.
