How Low OPR Rates Will Affect the Property Market


UPDATE ON 7 JULY 2020: Bank Negara Malaysia has further lowered its overnight policy rate (OPR) by 25 basis points (bps) to a record low of 1.75% (6).


The BNM (Bank Negara Malaysia) lowered OPR rates by yet another 50 basis points (bps) on May 5th, 2020, the lowest it has been since 2010. This decision comes in the wake of the Covid-19 pandemic, which has not only affected people’s well-being but has also caused the world economic market to slump.

The latest drop in OPR rates is third in line this year. BNM first dropped OPR rates on January 22nd, 2020, bringing it down from 3% to 2.75% bps followed by a further decline of 0.25% base points from 2.75% to 2.50% bps (3).

But what is OPR and how does it affect the property market in Malaysia?

Lowering OPR rates is one way to control market lending and borrowing rates.

OPR or the Overnight Policy Rate is the minimum interest rate at which banks circulate money amongst each other in the interbank market (2). The Monetary Policy Committee (MPR) of the BNM decides the OPR rates based on current economic conditions (2).

When the economy experiences a boost, BNM increases OPR rates to increase the borrowing rate of banks. This discourages investors from spending in investments, thereby preventing a state of inflation in the economy.


When the economy experiences a slowdown, BNM reduces OPR rates. By doing this, it enables banks to lend money to investors at lower interest rates and encourages investors to invest elsewhere in the market, thereby stimulating economic growth (4).

Thus, the BNM increases or decreases the OPR rates to stabilize the economy. In this regard, OPR rates affect all economic activities, including property investments.

To begin with, local banks will now adjust their base lending rates (BLR) and base financing rates (BFR) which will reflect as reduced interest rates on deposit. People with fixed and savings deposits will now earn less on their investment. Most of these people will start looking for a revised investment plan into other, more yielding ventures, one of which happens to be the hot property market in Malaysia (4).

The property continues to be the hot favourite investment option for many Malaysians. Over the last two decades, pricing, accessibility, infrastructure, public amenities and developer reputation have been important considerations for property investment in Malaysia (5). Investors who have thought through these considerations have yielded good property returns irrespective of economic conditions in the country. Hence, the property market has witnessed a good success rate in the last two decades (5).

Currently, the property market in Malaysia is a buyer’s market. This means that supply is more than demand and the property market is brewing with new housing projects in areas such as Penang and Selangor (1). This is the perfect opportunity for ambitious investors to invest in top property in Malaysia and when the economy reopens and market demand once more exceeds supply, they can earn hefty returns on their property investments (1). Moreover, experts consider loan values to be an important factor for property investment. Now that lower OPR rates will lead to a reduction in lending rates, the economics of taking a loan for property purchasing is likely to be more favourable for investors.


For like borrowing rates, a lower rate of OPR will also impact housing loan rates. High-interest rates happen to be one of the property investor’s biggest woes, which OPR rates will dampen for the time being. Banks will lend money to potential investors at lower interest rates which imply higher savings on housing loan interests for investors (4).

In conclusion, investors should see low OPR rates as one of BNM’s several fiscal measures in addition to their monetary and financial measures to cushion the blow of the COVID-19 pandemic on the Malaysian economy. The decision to lower OPR rates is to promote investors to increase the circulation of liquid funds in the market and to thereby boost economic growth.

If you’re one such potential investor, we urge you to keep an eye on your bank’s updated lending and borrowing rates and look for top property in Malaysia to invest in. For more information, feel free to get in touch with us.


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