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.