Friday 12 March 2021

Low Interest Rate Environment: Buy Buy Buy?

The chart above shows Overnight Policy Rate (OPR) of Malaysia since it was set in year 2004.

Current OPR of 1.75% is at its historical low.

As Malaysia's economy is expected to recover from this year onwards, Bank Negara has decided against lowering the OPR further last week.

I'm not an economy expert but I think 1.75% will be the lowest we can get from this pandemic-induced global recession.

I'll be very happy if the OPR can drop to 1.5% though.

What happened when Malaysia's interest rate dropped in such fashion last time?

It was in the end of 2008 and early 2009 when the OPR fell sharply from 3.5% to 2.0%. Now it falls from 3.25% to 1.75%, in which the magnitude is the same as in 2008/09.

One of the very obvious thing that followed the low interest environment during 2009-2010 was the property boom.

Just ask those who bought a property between year 2008 and 2012. They must be very happy to have grabbed one or two.

If history were to repeat itself, then we might see another round of property boom from 2021 to 2023.

Between 2008-2012, new property launches were everywhere. Property price increased 10-20% every few months and doubled in 3-4 years time.

Property stocks in Bursa Malaysia were also hotly chased after by investors as their sales and profits grew.

Lots of other listed companies diversified into property development, just like many companies diversified into PPE production last year.

You got an empty land? OK, lets build something on it, surely it will sell like hot cakes.

Can all these happen again now?

Personally I think definitely there will be more people buying properties in the next few years. However, property price increase might not be as good as last time.

Perhaps it's about "affordable" properties this time.

More properties at affordable price range of RM300k-RM500k will be sold and we might not see the pattern of price increase like last time.

I can't imagine a "relatively affordable" property at RM400 psf now will be sold at RM800 psf in 3-4 years time. Nevertheless, it might reach RM500-600 psf if the location is good.

When I bought my first property back in 2009, the interest rate I got was BLR-2.3%. As the BLR (Base Lending Rate) at that time was 5.55%, the effective interest rate was 3.25%.

Three years later in year 2012, since the OPR has been revised upward to 3.0%, BLR has increased to 6.6%. Thus the interest rate of my property loan also increased to 4.3%.

In year 2016, the OPR rose further to 3.25% and the BLR rose to 6.95% which means my property loan interest rate was as high as 4.65%.

The latest interest rate for this property loan is 3.17%, which means the bank has adjusted the BLR to 5.47% now which is slightly lower than the 5.55% when I applied for this loan in 2009.

BLR has been replaced by BR (Base Rate) since Jan 2015. New loan agreement signed after this date will be based on BR.

Now in 2021, I applied for another property loan and the rate I got is BR+0.32%. As current BR of this particular bank is 2.63%, the effective interest rate is 2.95%.

This rate is 36.5% lower compared to 4.65% in year 2016.

Besides property, more people will buy cars as well when the interest rate is low.

Recently I just applied for a car loan and the interest is just 2.38% for a new national car.

I also received a call from a bank that offered me 1.88% p.a. (flat rate for 12 months) of personal loan from credit card. 

I think it's the lowest rate that I was ever offered. Previous low is around 3%.

Car loan and personal loan have flat interest rate in which the interest rate and our monthly repayment won't change even if the OPR increases in the future.

Have you taken advantage to raise debts in current low interest environment?

Of course there are good debts and bad debts. Just make sure that you know what you're doing when you apply for more debts.


  1. I congratulate u for getting a 3rd property. I do think that the present time is a perfect timing to buy property. If one sees how much hot money is drifting around now and how the property price of our Asian neighbours, i.e. Taiwan, China, Korea etc, is escalating now, one will realize Malaysian property will follow suit sooner or later. Its just like when stock market is booming, some industries will show the escalation in stock price first, and then follow by other lagging industries. Our Malaysian property market is lagging but it will catch up.

  2. I can no longer qualify for bank loan (u know why), otherwise, i would buy now too. What i can "take advantage" now is DO NOT SELL my properties this year or next year. Fyi, i have advertised my properties for sales since some years ago but couldn't get right price and right buyer, thus i shift to renting them out. I have stopped advertising for sales since last year, because i decide to on hold in order to sell at better price in some years to come. I do see another property upcycle is on the way.

    1. Yes, better buy rather than sell at the bottom of property cycle.

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  4. By the way, do u notice that Bursa's property stocks have also been climbing up in last several days? maybe can consider to pick up some property stocks to wait for their glory day :) ?

    1. I haven't study most of the property stocks for years. Lagenda & KPProp looks quite attractive, but I'm not sure whether their huge profits are sustainable or not. Do you have any good property stocks to share? :)

    2. I just started to look into property companies lately, thus not much info yet. I have KSL in my watch list, i think it is cheap as it is selling at merely 25x P/BV. KSL has high land bank in Johor and Klang. Its 2020 earnings was poor mainly due to its investment property segment, which consists of shopping mall and hotel, was badly impacted by the pandemic.
      It has a characteristic of able to "run fast" if and when property market recovers. I am still at monitoring stage for property stocks. I am concerned the recent small rally for property stocks may not last long, thus i do not want to chase high. I may consider to pick up some only when the tide retreats.

    3. How about MKH? Reputable developer with vast lands in Semenyih and Kajang ,together with palm oil plantation in Indonesia? They are not negatively impacted by labour issue which happened to Palm Oil producers in Malaysia hence will be able to capitalise for the high palm oil price now. Hence, kind of think that they have double engines which is poised for enormous growth this year. Eager to hear you thoughts on it.

    4. I know both KSL and MKH quite well in the early 2010s. Both are good companies but I haven't follow up them for many years. At this time I'd like to look at the GDV of new launches, pick up rate and the trend of unbilled sales. MKH has lots of plantation land in Kalimantan which might benefit from Indonesia's capital relocation to east Kalimantan. Its plantation segment should do very well with CPO at over RM4000. Personally I prefer small property developer like newly listed Teladan Setia. Anyway, I still don't have plan to invest in property stocks but will keep monitoring them.

  5. Price of property will not increase as much as in 2009 - 2014 due to imposition of real property gain tax, overhang properties built by private developers and government projects such as PR1MA.

    1. Agree, I think the price will just increase slowly following the inflation rate.