Higher rates, lower prices. Just one of the measures to cool rising prices.
I wrote this article on property price and interest rate recently. Property price to me is ultimately due to demand and supply; which side has stronger holding / negotiation power. Even if two person were to buy the same property, the end result may be totally different. Take a look at how interest rate may also influence a bit. Read: Higher interest rates means higher or lower property prices?
Here’s a look at one country which is doing it’s best to control the surging home prices by increasing the interest rates. It does seem to be working for this advanced economy. Nope, not the UK, not Australia and not Singapore.
Article in nst.com.my Canada’s central bank hiked the interest rate a month ago to rein in surging home prices. There are signs that this is working. Toronto’s average selling price dropped 2.6% in March versus February 2022.
Sal Guatieri, a senior economist at BMO Capital Markets said, “The higher rates will douse the flames somewhat. We likely will see sales pull back from elevated levels and almost certainly see a slowing in unsustainable house price growth.”
However, Canada’s economy is also increasingly relying on real estate and this meant that the government will not do too much and kill the golden goose. Christopher Alexander, president of real estate firm RE/MAX Canada said, “It’s not just the sale of homes, but all the spinoffs you get. Contractor work, appliance sales, furniture.” Please do read the full article here: Article in nst.com.my
Real estate is not just about homes
When we look at a new development, it’s not just about the homes. It’s also about the construction industry which will hire a lot of people. It’s also about the renovation industry which will serve the many new home buyers. They will also hire more people. It is also about the furniture industry which will need to manufacture more furniture when people are moving into new homes. They will also need to hire more people. Ultimately, all these new people being hired would be spending their salaries on goods and services.
At the most basic level, supermarkets would be selling a lot more groceries and they would need to hire more people and their vendors would also need to ramp up their production to supply to the supermarkets. Okay, we should also add the fact that barbers would also have more business too. This is why when property development slows down, it will also have slow down many other industries as well.
Happy understanding that for some countries, increasing the interest rates would have a dampening effect on the property market. Yes, Malaysia’s Bank Negara Malaysia (BNM) is said to be increasing our rates in the second half of 2022 as well. That’s very soon yeah. So, how would it affect the Malaysia property market then?
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