PETALING JAYA: The demand for property loans is expected to be weaker going forward due to the overnight policy rate (OPR) hike last month.

On May 3, Bank Negara raised the OPR by 25 basis points (bps) to 3% in a move that caught the market by surprise.

This is expected to put pressure on borrowers to service their existing debts, thereby diverting funds away from discretionary spending, which may dampen the demand for property as well.

MIDF Research said looking ahead, it expects loan applications to stay weaker as the central bank had raised the OPR by 25 bps to 3% last month, which may dampen buying interest on property.

According to data released by the bank, loan applications for purchase of property took a breather in April 2023, easing by 23% month-on-month (m-o-m) after two consecutive increases in February and March this year.

Recall that loan applications jumped to the highest in more than two years in March this year due to recovery in buying interest following the pause in OPR hike in January and March.

On a yearly basis, loan applications declined by 11.4% year-on-year (y-o-y) following two consecutive increases in February and March 2023.

Total loans approved for purchase of property declined by 17.8% m-o-m in April, in line with the lower loan application in April 2023.

The decline was partially cushioned by higher loan applications and higher percentage of total approved loans over total applied loans of 46.4% in April 2023 (March 2023: 43.5%).

On a yearly basis, approved loans eased by 5.1% y-o-y in April after an increase of 9% y-o-y in March.

“Cumulatively, total approved loans in the first four months of the year was higher by 6.3%, which bodes well for new sales outlook for property developers.

“Nevertheless, new sales momentum might turn weaker, going forward, as loan applications are expected to be weaker due to the OPR hike in May of this year,“ the research house said.

MIDF Research, however, said it sees the improving residential overhang in the first quarter of this year (1Q23) to be positive to the property sector as that signals easing concern of an oversupply situation of residential properties in Malaysia.

According to data released by National Property Information Centre, the residential overhang of Malaysia remained on a declining trend in 1Q23.

Residential overhang continued to drop to 26,872 units in 1Q23 after falling to 27,746 units in 2022 from 36,863 units in 2021.

Selangor has the highest residential overhang units of 4,995 units, followed by Johor (4,759 units) and Kuala Lumpur (3,423 units).

In a nutshell, it is maintaining its “neutral” stance but with a positive bias on the property sector.

“Our top picks for the sector are Mah Sing Group Bhd and Glomac Bhd as we remain positive on developers that focus on building projects in the mid-market and affordable segment.

“We continue to see resilient demand for affordable homes due to demand from first-time home buyers,” it said.