Huge unsold houses of RM41.5bil and OPR at 2%; what homebuyers should anticipate?
The number of completed and unsold properties from all segments rose to RM41.5bil as at end-2019, with close to 57,000 units sitting on the books of developers, according to the National Property Information Centre (Napic).
More than 45% of the overhang in ringgit value was contributed by the residential housing of all classes, ranging from landed to high-rise units.
The bulk of the unsold units was contributed by high-rise units, Napic research data showed at a virtual launch of its Property Market Report 2019. The 57,000 units unsold completed units in 2019 represents an 11.2% rise in volume, and 16.1% in terms of ringgit value compared to 2018.
Interest rate is down, cheaper home loan?
With the recent drop in OPR (Overnight Policy Rate or Key Interest Rate), it is now cheaper for new property buyers to take up a home loan product as they could leverage on the lower initial interest rate.
The recent OPR was reduced by 50 basis points (bps) to 2% on 5th May 2020, the lowest since the Global Financial Crisis in 2009. That was the second drop within the 3 months where the previous OPR drop of 25 bps (to 2.5%) on 3rd March 2020
“We estimate that every 50-basis points reduction in borrowing rate would reduce the monthly instalment for mortgage loans by 2% to 7%, depending on the loan tenure,” said CGS-CIMB.
“Our sensitivity analysis shows that every 50 basis points drop in borrowing rate would reduce the monthly housing loan instalment for properties in the affordable range of RM300,000 to RM500,000 by RM64 to RM131 or raise a buyer’s eligible loan amount by RM8,000 to RM30,000.”
With this, CGS-CIMB reiterates its “neutral” outlook on Malaysia’s property sector.
The low interest rate environment will not last for a long time, and property prices will bounce back once the economy gains momentum.
The quicker the buyer can secure a loan right now, the more they’re likely to save.
House prices biased downwards
Property prices are expected to decline by as much as 20% in the next few months with more motivated sellers, as the impact of Covid-19 continues to unfold.
During the online Asean Real Estate Forum, Malaysian Institute of Estate Agents (MIEA) president Lim Boon Ping said that the Malaysian real estate market will shift to a buyer’s market, from a seller’s market previously, as a result of Covid-19.
As such, property prices at best could decline by 10%, and at most could decline by 20%. Real estate experts anticipate that property developers will also extend to give more discounts even after the Home Ownership Campaign (HOC) that was initiated by the Government last year.
But would it be easier to get your home loan approved?
It depends; aspiring homebuyers that have saved their reserve would have the better bargaining chip during the current downturn. Homebuyers who are ready to put down more than 10% (the minimum downpayment) stand a better chance of receiving a loan.
A bigger deposit also shows bankers that the buyer is a good saver and able to manage their finances. This will increase the chances of getting approved for a home loan.
More down payment also means the buyer borrows less, which means they will have a smaller mortgage, which means the buyer will always have a smaller, more affordable monthly mortgage payment.
However, during this period, banks are currently tightening their lending policies and will be more selective as well given the unfavourable market.
Bank’s loans default risk is expected to be increased especially in the business segment and exposure to the depressing oil market. Capital allocation for their mortgage segment is likely not to be increased due to compressed margin thus they may not be able to grant much home loans.
If the buyer's job and income are stable and not in danger of being drop, then he/she might have a higher chance of home loan approval.
It’s best to get pre-approved now as there will be a cascade of effects that the coronavirus pandemic will have on the economy and banks’ balance sheet.
Gloomy outlook ahead
Consumer confidence and job security are major purchasing decisions when choosing to buy a home during this pandemic. Homebuyers need to demonstrate to bankers that they have a solid grasp of financial and employment stability when trying to secure a loan.
They don’t necessarily need a high income to qualify for a home loan, but their income will influence the loan amount for which they’re approved.
To ensure buyers have sufficient income to cover monthly mortgage payments, bankers will consider the buyer's total monthly income from all sources. This total will include salary and bonuses as well as income from dividends and interest.
Banks have started reviewing pre-approved mortgages who are going through financial hardship due to the loss of jobs or reduced hours. Some bankers may be asking for a recent payslip or are doing some other kind of employment check before they advance the loan.
An attractive credit history, sufficient income to cover monthly payments and a sizeable down payment will all count in buyer’s favour when it comes to getting an approval.
The best time to buy properties is during times of crisis, such as the current environment where the Covid 19 pandemic has thrust the global economy into a tailspin.
Check out our previous blog 4 Things to Check Before Applying for a Home Loan or sign up to check your Mortgage Eligibility for FREE to see how much you might be able to borrow
13 May 2020 | By HomeCrowd team