Possible easing measures for property sector after OPR cut, say analysts

KUALA LUMPUR (July 15): Bank Negara Malaysia’s (BNM) unexpected overnight policy rate (OPR) cut signalled possible easing measures for the property segment going forward, as the 25 basis points (bps) reduction from 3.25% to 3% is unlikely to have a significant impact on the housing market, said analysts.

So while the central bank’s move is in line with the easing policies globally, it is not substantial enough to revive the local property market, which has been tied down not only by tighter lending policies, but also the abolition of the developer interest bearing scheme (DIBS) and the hike in real property gains tax (RPGT).

“Tighter lending policies are the main cause of the slowdown here. Even with the rate cut, there would be limited impact as banks still curtail lending,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Edge Financial Daily.

TA Securities analyst Thiam Chiann Wen held the same view. She also noted that adjustments to effective lending rates by banks could be less than a 25 bps cut, due to the new base rate (BR) framework, which determines interest rates based on banks’ benchmark cost of funds and statutory reserve requirement (SRR).

“Assuming banks adjust their BRs accordingly, our sensitivity analysis suggests that a 25 bps cut in lending rate will decrease monthly repayment of a 30-year loan by 2.9%. Nevertheless, we believe a 2.9% decrease in monthly repayment alone is insufficient to convince consumers to commit to big-ticket purchases,” she said.

However, the research house, which expects the OPR to remain at 3% for the rest of the year, said it would change its view if there was a combination of easing policies introduced, such as further OPR cuts, additional reduction in SRR, a reinstatement of the DIBS, the removal of the 70% loan to value cap on third property, and lower RPGT.

Though Hong Leong Investment Bank analyst Jason Tan also opined that the rate cut’s impact would be limited on the property sector, he said the move gives a positive effect on sentiment.

“BNM said previous property cooling measures such as the removal of DIBS and RPGT hike have successfully reined in property speculation activity. As such, we do not rule out any potential relaxation of property measures,” he said, adding further easing will benefit high-beta property stocks such as Eco World Development Group Bhd and UEM Sunrise Bhd the most.

But IHS Markit’s Asia-Pacific chief economist Rajiv Biswas believed BNM will remain cautious on relaxing its macro-prudential policies, implemented since 2010, due to Malaysia’s high level of household debt.

“Due to the high household debt-to-GDP (gross domestic product) ratio, which reached 89% in 2015, broad-based relaxation of macro-prudential measures would create potential medium-term macroeconomic risks.

“What is required is targeted measures to allow first-time buyers to buy their first homes without creating risks of moral hazard that can be generated by high-risk lending measures such as 100% residential loans,” he said.

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This article first appeared in The Edge Financial Daily, on July 15, 2016. Subscribe to The Edge Financial Daily here.