The “R” Word
More bad economic news for the US as the Economist magazine predicts a high probability the US will slip into recession next year. Higher inflation figures, disruption to global supply chains due to the war in Ukraine and sluggish growth prospects post pandemic are the causes.
What about the prospects for the same in Bolehland in 2023? The Finance Minister is already predicting a huge increase in the cost of subsidies (mainly petrol and foodstuffs). Bank Negara Malaysia has not (yet) signalled interest rates might have to increase by more than 0.5% by year end 2022 to rein in inflation.
If BNM decides to maintain its accommodative monetary policy that is the root cause of a depreciating Ringgit, I think the Ringgit will continue to fall. That will probably dampen demand by foreign buyers for High End properties in KL. Even High Net Worth Individuals currently eyeing KL Branded Residences like 8 Conlay costing RM3000+ PSF will probably baulk at sinking a couple of RM million into depreciating assets.
On the other hand if BNM allows interest rates to climb another 2-3% back to "normal" levels, housing loan demand will be hit hard. See the historic 2000-2021 of bank interest rates chart below . I pencilled in a horizontal line in red where I think “normal” rates were in the past. A 2% hike, if it materializes in 2023, will mean some overleveraged home buyers who borrowed 90% for their mortgage loans will probably find it difficult to continue to service loan installments. A recession also means more people will downsize to cheaper rental apartments.
Net effect, I think 1. rents for high end KL apartments will have to come down further, 2. auctions of high end KL properties will continue to increase in 2023.
Post Script
2021 was the worst year for me in over 20+ years as a KLCC landlord. I had to reduce the monthly rent for my 3000+ SF KLCC luxury condo by RM500. In 2022, I am getting more than 10% less in gross rental compared to 2000 when I got the keys to my apartment from the developer, believe it or not. See 10 year chart for rents in PSF for 3 bedroom units at Kirana Residence below. Source: PropertyGuru's Pricing Insights
Last year, I predicted auctions for KL high end properties will accelerate in 2022 and auction prices will trend down. Todate I have posted 7 updates on the KL auction property market in my blog 360 KLCC - “Analysis, Insights & Perspective for the KL high end property market”
#recession #housingloandemand #interestrates
