O.P.R Cut by 0.25%

Bank Negara announced cut by 25 basis point for OPR (Overnight Policy Rate) on 7th May 2019. In their statement:

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

(ref: http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4850&lang=en)

OPR Cut - 2019

What is Overnight Policy Rate (O.P.R)?

The overnight policy rate (OPR) is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight.

(Quoted: https://en.wikipedia.org/wiki/Overnight_policy_rate)

When was the last adjustment? What was the adjustment?

The last adjustment was on 25th Jan 2018 with increase of 0.25%. For the full list of OPR movement since 2008, kindly refer to Bank Negara Malaysia website.

(http://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt)

What does this has to do with me? 

The movement of OPR might trigger adjustment of interest rate for banks including fixed deposit, short-term or other long-term interest rate. And, if you have a Mortgage Loan, movement of OPR will trigger adjustment to your Base Lending Rate (BLR) or Base Rate (BR) which could affect your monthly instalment. In short, this shall followed by lower interest rate in both saving or loan products for banks.

What can I expect and what to do?

Since the adjustment will come in phases, if you have extra cash and decided to be deposited, you may want to log in longer and earlier. As you will expect the next deposit rate may be lower. At the same time, if you are looking for loan product with fixed interest rate such as Hire Purchase, Personal loan and etc, you might want to wait for the bank to make the adjustment.

Why does OPR set by Bank Negara?

In a simple way, it is used by Bank Negara as a way to either encourage spending or discourage spending. This is also one of the way to influence economy growth, inflation and even employment rate. Imagine, when saving interest rate is low, this will discourage public from deposit it with bank but to look for alternative such as capital market, bond or other investment opportunity. This will bring more money to the market to spur economy activities.

At the same time, when loan interest is low, it will also encourages borrowing activity that will stimulate economy. Businesses might take the opportunity for capital expenditure or business expansion since the cost is lower. This could also lead to more employment opportunity.

What is your view on the adjustment of OPR by Bank Negara Malaysia?

Feel free to share with us your view.

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Rent to Own is Finally Revealed! Is it your BEST Chance to Own your House?

We have heard about Rent-To-Own scheme some time ago, and it is now revealed by Maybank Islamic through it’s innovative product – #HouzKEY. What could be better than having the opportunity to own a house by renting it first? We often hear that owning a property is very challenging especially for fresh graduates or young generation, but most still wanting to own a property in long term as renting is deemed unsecured and owning a house is still one of the dream of every Malaysian.

Rent2Own

Before we decide with the Rent-To-Own scheme, we must first understand that we want to own this house and it is not for those who think that rather than paying rent, I might as well choose this scheme so that I have an option in the future. The gap between Market Rental Rate and HouzKEY Rental Rate is too huge for discussion. (Example: Da Men Apartment, Subang Jaya; HouzKEY Rental Rate start from: RM 2908.40; iproperty Rental Rate start from: RM 1,500.00) For this reason, we will not discuss any comparison between this scheme and renting a house.

Few Key Features:

  • Low Entry Cost – compared with the cost involved in purchasing a property. (3 Months Security Deposit)
  • No Obligations to Own it – After a period of 5 years, we can choose not to take up the property and we are not in debt.
  • Ride on Property Capital Appreciation – If anytime after a year, we can choose to “Sell it Off” should the price increased although we have not actually bought it. This is due to the obligation of the scheme to transfer it to the Scheme participant whether through cash out or taking up a mortgage.

Control measure well considered:

It seems to be a good opportunity for speculator again to ride on the low entry cost to get into the scheme with multiple units. However, in order to be eligible for this scheme, one MUST NOT HAVE more than ONE home financing which is one of the good measures to stop speculators.

The question is, what about multiple applications from a person? And, is application to this scheme also considered as a home financing? (Product Disclosure Sheet revealed that participation in this scheme will be reflected in CCRIS)

HouzKEY’s Rental Rate vs Mortgage Financing Rate

From the PDS, both are Effective Rate to be pegged against Bank’s Base Rate and 4.85% has been used for calculation (We are not sure if this is the Effective Rate for HouzKEY). Quick check with online comparison site shows that current rate for a typical RM 500,000 loan start from 4.20%) .

To make the comparison easier, PDS simulation shows a total payment of RM1,204,403 for a RM 500,000 property. We did a simple calculation with RM500,000 loan amount (assume 100% loan) with effective rate of 4.85% (as used in PDF), total amount payable will be approximately RM 949,846 (with tenure of 30 years). There is a difference of almost RM 300,000. This is due to the pre-determined purchase price to be agreed in the contract.

Should we opt for Rent-To-Own?

In our opinion, maybe one could search for 100% loan option available such as Graduate program. When all other options are not available, HouzKEY could be an option to consider.

However, there is one feature of the program that one should not overlook – Lock In Period. The minimum contract period is 5 years; Quick check in the FAQ section on m2own website suggests that if tenants decided to terminate the contract earlier, tenants are required to pay the rentals for the remainder of the lock-in period.

*Disclaimer – Information provided is based on information obtained from official site at the time of publish. Purpose of this post is to share the update in property market for reference only. One should always see a qualified personnel prior to any decision.