Learning series: If interest rates go up, do property prices go up or down?

Learning series: If interest rates go up, do property prices go up or down?

This is one of those questions that sounds very simple. The answer?

It depends.

Haha.

Some people will immediately say, “Interest rates go up, property prices must come down.”

But property is not quite that straightforward.

Let’s start with something basic: supply and demand.

According to Investopedia, the law of demand says that when prices are higher, buyers generally demand less. The law of supply says that when prices are higher, sellers are generally willing to supply more.

These two forces interact to determine the price and volume of goods traded in a market.

And property is no different.

#1 When property prices go up, more supply may come

When property prices are rising strongly, developers become more interested.

Why?

Because they see potential profit.

Sometimes, companies that were not traditionally property developers may also enter the property market when they see attractive opportunities.

More developers mean more new launches.

More projects mean more supply.

But here is the important question:

Can demand keep up?

If demand continues to grow together with supply, everything can still be fine.

But if supply increases much faster than demand, eventually someone has to adjust.

And usually, that adjustment comes through price, incentives or both.

This is why property development has to be planned carefully.

It is not enough to say, “People need houses.”

The real question is:

Which people, which location, which product and at what price?

#2 So what happens when interest rates go up?

Now we come to the interesting part.

When interest rates increase, the cost of borrowing generally increases.

For a homebuyer, this could mean a higher monthly repayment.

And if the monthly repayment becomes too high, some buyers may decide:

“I will wait first.”

Others may downgrade from a RM700,000 property to a RM500,000 property.

Some may buy a smaller unit.

Some may rent instead.

And some may simply say, “Not now lah.”

That reduces demand.

Bank Negara Malaysia itself explains that changes in the OPR affect economic activity through interest rates. Higher interest rates on loans and savings can encourage people to save more and spend less, helping to slow demand.

So yes, higher interest rates can put downward pressure on property demand.

But that does not automatically mean property prices must fall.

#3 The seller has a choice too

This is something we sometimes forget.

A buyer can delay buying.

But a seller can also delay selling. (Yes… this is why owners could even have more power!)

Imagine a property owner who bought a condo for RM500,000 and now someone offers RM450,000.

Does the owner HAVE to sell?

Not necessarily.

If the owner can continue servicing the loan and does not urgently need the money, he may simply say:

“No thanks.”

He can wait. The buyer however may have to continue renting… that’s also a never-ending cost.

This is why property prices do not always immediately fall when interest rates rise.

The number of transactions may fall first.

Negotiations may take longer.

The gap between buyer expectations and seller expectations may become wider.

Eventually, if enough sellers need to sell and enough buyers are unwilling to pay the previous price, prices may adjust.

But it is not automatic.

#4 What if the seller reduces the price?

Now we get to an interesting calculation.

Suppose a buyer originally intended to buy a RM600,000 property.

But interest rates increase and the buyer’s monthly repayment becomes uncomfortable.

The seller could potentially reduce the asking price to RM550,000.

The lower property price could partly offset the impact of the higher interest rate.

In other words, the buyer’s affordability is not determined by the interest rate alone.

It is also determined by:

Property price + loan amount + interest rate + loan tenure + buyer’s income.

That is why simply saying “interest rates are going up, so property prices will fall” is too simplistic.

#5 Malaysia gives us a good real-life example

Look at Malaysia today.

Bank Negara Malaysia’s OPR is currently 2.75%. It was reduced from 3.00% to 2.75% in July 2025 and has remained at 2.75% throughout the 2026 meetings held up to September.

Meanwhile, NAPIC reported that Malaysia’s House Price Index grew by 2.6% in 2025, compared with 4.1% growth in 2024.

NAPIC specifically noted that the July 2025 OPR reduction and government incentives improved buyers’ financial capability and supported the residential property market.

So yes, interest rates matter.

But notice something else.

The property market did not move simply because of interest rates.

There are many other factors.

Income growth. Employment.

Population growth. Location.

New infrastructure. Supply.

Construction costs.

Foreign investment. Buyer confidence.

And, of course, whether people actually WANT to live in that particular property.

#6 Then why do some established areas hold their prices?

This is where location becomes extremely important.

Imagine two neighbourhoods.

One is an established township with schools, shops, hospitals, public transport, offices and good accessibility.

The other is a new development far away from established amenities.

If interest rates rise and demand weakens, both may be affected.

But they may not be affected equally.

There may still be plenty of people who want to buy into the established neighbourhood because they have a reason to be there.

In a weaker market, there will always be some desperate sellers.

But if the number of people who want to buy into an established location remains significantly higher than the number of desperate sellers, prices may remain relatively resilient.

The less established location may have a harder time.

This is why property is not one single market.

Even within the same city, one neighbourhood can perform very differently from another.

So, if interest rates go up, what happens?

My answer is:

Property prices may come under pressure, but they do not necessarily have to fall.

Higher interest rates can reduce affordability.

Lower affordability can reduce demand.

Lower demand can eventually put pressure on prices.

But sellers can hold.

Buyers can wait.

Developers can offer incentives.

Prices can adjust.

And some locations can remain resilient because demand remains strong.

For me, the bigger lesson is this:

Don’t buy property simply because interest rates are low. And don’t avoid property simply because interest rates are high.

Maybe the property is simply too expensive for you.

Happy deciding.

References

• Bank Negara Malaysia – Monetary Stability — Explanation of how changes in the OPR influence borrowing, saving, spending, demand and prices. 
• Bank Negara Malaysia – OPR Decisions — Current OPR and historical OPR decisions. 
• NAPIC – Malaysian House Price Index — Official Malaysian House Price Index publications, including Q2 2026. 
• NAPIC – Malaysian House Price Index 2025 — 2025 national house price growth and discussion of the impact of the OPR reduction. 
• Investopedia – Law of Supply and Demand — Basic explanation of the relationship between supply, demand and prices.