SO CAN BANK NEGARA REALLY RAISE INTEREST RATES ALONG WITH THE REST OF THE WORLD? WHAT WILL HAPPEN TO THE RINGGIT IF THEY DON’T, WHAT WILL HAPPEN TO PROPERTY BUBBLE IF THEY DO?

KUALA LUMPUR – The imbalances in the property market pose significant risks to the overall economy in the event of a shock, said Bank Negara Malaysia (BNM) Governor Tan Sri Muhammad Ibrahim.

He said Malaysia has a record high unsold residential properties of about 130,690 units until the first quarter this year, mainly for houses priced above RM250,000, while the vacancy rate for office space is expected to be at 32% in 2021.

With about 140 malls entering the market in key states by 2021, he said this would exacerbate the oversupply and potentially becoming more severe than during the Asian Financial Crisis (1997).

According to the International Monetary Fund, historically housing booms have been followed by busts about 40% of the time, which is associated with longer economic downturns and larger output losses compared to the equity market.

Given that they are imbalances in both residential and commercial property segments, BNM in its report said this is a source of concerns as the property sector has linkages to more than 120 industries, collectively accounting for 10% of Gross Domestic Product and employing 1.4 million Malaysians.

Muhammad said the central bank had raised this issue to banking institutions and the exposure of the financial institutions in this sector was still at prudent level but property oversupply could impact other sectors.

He said borrowers continued to have access to home financing, especially first-time home buyers.

Housing loan approval rate stood above 70%, while the rejection rate remained below a four-year average at 23.3%, he said, adding that financing for speculative house purchases remained muted.

In the first nine months of this year, RM121.6 billion of new housing loans were approved by banks, benefiting close to 300,000 borrowers.

Of this, 60% were channelled for the purchase of houses priced below RM500,000.

He said housing loans continued to grow at a sustained pace of 8.8% this year from 11% last year.

On outstanding loans, about 71% were for the purchase of houses priced more than RM500,000 by first-time house buyers, he added. 

— Bernama

.