The Relationship Between Overnight Policy Rate (OPR) with Property Loans

You may be wondering what OPR has to do with property loans. Well, this article explains the effects the 2020 Overnight Policy Rate (OPR) cut has on houses for sale in Malaysia, including those in Melaka and the Malaysian property market as a whole.

For those unfamiliar, OPR is an overnight interest rate used for monetary policy direction. OPR, set by Bank Negara Malaysia (BNM), is the interest rate at which a depository institution (e.g. a bank) lends immediately available funds to another depository institution overnight. In the course to continuously improve economic growth after the raging effects of the coronavirus pandemic, policymakers sought to OPR cut, strategically.

Besides economic growth, the Overnight Policy Rate affects the country’s employment and inflation. It is an indicator of the overall wellbeing of a country’s economy and banking system.

malaysia opr rate history
Four OPR Reduction in a Single Year

The announcement on July 7, 2020, was the fourth time the OPR has been decreased this year – however, this time marks a record low at 25bps to 1.75%. The first occasion was on the 22nd of January 2020 as the OPR rate was cut by 25bps to 2.75%, while on the 3rd of March 2020 the OPR rate was cut by 25bps, to 2.50%.

The third occasion took place on the 5th of May 2020 as the OPR rate was cut by 50bps to 2.00%. One would only expect this measure to be put in place by the government as a means to secure the improving growth trajectory amid price stability. After all, a healthyeconomy encourages spending, which boosts the overall Gross Domestic Product.

The Best Time to Acquire a Property

With the advent of the coronavirus, every sector has taken a considerable blow, most notably new properties for sale in Malaysia, including those in Melaka. In fact, there is a need for this price cut as the price of properties in Malaysia has been declining in the last three years.

According to the National Property Information Centre (NAPIC), the value of unsold residential units dropped to RM18.8 billion in the third quarter of 2019, compared with RM19.54 billion a year earlier.

Meanwhile, based on Nawawi Tie Leung Property Consultants Sdn Bhd’s statistics, we know that there were an estimated 53,666 units of residential overhang in the second quarter of 2019. Fortunately, the OPR cut will be a benefit for homebuyers in Malaysia challenged by the high cost of houses. There is no better time to buy property than now.

Taking advantage of the Overnight Policy Rate (OPR) reduction to buy a new property in Malaysia, including those in Melaka is a wise decision. Barely a month after the OPR cut, the number of inquiries from potential buyers has skyrocketed.

The announcement and implementation of the OPR cut have already started making an impact by helping to ease the financial conditions of Malaysian citizens. However, the strength and pace of the recovery remain uncertain as they depend on several other factors like inflation, further outbreak, labour market conditions, etc.

OPR Cut Means Lower Interest Rates

The OPR cut is specifically designed to capture the continued growth of the property market in Malaysia. This makes it good news for those taking out property loans. Simply put, a lower OPR cut implies a lower interest rate.

This low-interest rate provides the opportunity for property investors to get the best returns on their investment. Whether you are selling a house or renting it, your return on investment will significantly increase as lowering the interest rate encourages potential homeowners to acquire a property.

As helpful as the OPR cut is for borrowers, savers will suffer a huge blow. A reduction in interest rates on borrowing would also imply a lower interest rate for savers looking for better returns on their savings and fixed deposits.

The banks are also affected as lower profit margins may affect banking stocks in the short-term. However, one of the fastest ways for the global economy to recover is monetary easing (lower interest rates) across major economies. Until an economy is healthy, it is difficult to sustain business and growth.

A healthy economy ensures every sector, including the housing market, in good shape. A combination of low-interest rates, as well as moderate property prices, would inevitably support the housing rental market and in turn, boost a country’s economy.

The OPR cut could be a positive move for the economy, and home seekers are expected to take advantage of this once in a lifetime opportunity by investing in houses for sale in Malaysia, including those in Melaka.

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