Property Investment 101: Interest Rates must interest you too

Property Investment 101: Interest Rates must interest you too

In case you are wondering if today’s figure for interest rate is high or low, well the answer is, it’s low in comparison to history. Take a look.

Then there’s this article: “BNM likely to cut rates in 2025 amid growth concerns; timing uncertain — economists” Read it here: theedgemalaysia.com

When rates are cut, what does that tell about economic growth?

When rates are cut, it means our Bank Negara Malaysia would like to encourage consumption, spending, investments into the economy. With lower rates, people would be tempted to buy a property, perhaps buy a new car, maybe start a business etc. In other words, lower interest rate could start a potential multiplier effect. The only reason why this could be needed is that there are signs that the economy is slowing down. Maybe the numbers have started to stagnate? Maybe the numbers are showing a slowing down of growth.

Maybe it’s because the world will be slowing down and perhaps we need the domestic consumption to counter this and it’s coming in the near future. let’s understand that if the world is slowing down, Malaysia which is a major exporting country will also be slowing down. When no one’s buying, there’s no need to continue building.

If no one’s building or manufacturing, there are chances that some people may lose their jobs too. So, that could also be a bad multiplier too. People losing jobs meant no salary. No salary meant buying less things. Buying less things meant the producers produce less. Produce less means less people are needed and voila, more people losing their job and the cycle continues. Not a great sign yeah.

Lower rates also meant cheaper to invest into that first property, maybe?

First of all, whether rates are cut or not, current rates are low and it’s definitely more amazing to pay 4 percent interest for a home versus a long time ago when it could have been double. So, when rates are reduced, people could find it more attractive to finally buy that first property. Here’s a quick calculation of what 0.5% rate cut means for the home loan.

The difference is RM135 per month. That’s roughly 10 lattes from ZUS Coffee per month. Alternatively, save that for a year and it’s a holiday for one in Langkawi including flights and hotel. Flights – RM300, hotels x 3 nights (RM600), car rental x 3 days (RM300) and F&B (all the remaining). So, yea, it’s great for the average person because the savings would allow them to do a lot more.

Plus… if the person could invest these savings, then it would compound in years to come.

Investment needs due diligence

In case everyone simply buy a property because rates are low, then chances are this could be a wrong buy. If we are buying for own stay, make sure we love to stay there. Cheaper house does not mean we would love to stay yeah. If we are buying to rent out to working professionals, then at least understand if there are office towers or nearby MRT / LRT stations or even some malls etc… Check out the rental versus the home price to understand if it makes financial sense or not too.

Never be penny wise pound foolish yeah. Rates could be low and it could be lower in the near future but this is merely a ‘penny.’ Buying the wrong property for the wrong reasons would be a huge number and that’s the ‘pound.’ All the best and happy reading.

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