Interest rate cut may spur homeowners to refinance loans

The latest cut in interest rates by banks will encourage more homeowners to refinance their loans, a trend that should become visible in the market in the next three to six months.

Rahim & Co executive chairman Datuk Abdul Rahim Rahman expects the property market in the country to feel the full impact of the global financial crisis in the coming months and to recover in two years.



"Before it starts recovering, we have to face the worst. The property market is usually slower to recover than the economy," he told reporters in Kuala Lumpur yesterday.

Property prices have dropped by between 10 per cent and 15 per cent since late last year as prospective buyers adopt a wait-and-see attitude in committing towards purchases and banks become more cautious in extending loans.

"The situation today is definitely not as bad as during the 1997 Asian financial crisis when it took at least five years for the property market to recover," Abdul Rahim said.

He attributed this to the country's more sound economic situation and the RM7 billion economic stimulus package.

"In some ways, the decline in the property market helps to stabilise rental rates for some developments, such as the luxury condominium units located in the Kuala Lumpur City Centre (KLCC) vicinity."

Abdul Rahim said the average price of luxury condominiums rose as high as RM2,500 per sq ft last year, but has since fallen to between RM1,000 and RM1,500 per sq ft.

"Demand in the KLCC area is not as strong as before. As a result, sellers are now becoming more flexible and willing to negotiate."

Asked whether KLCC property prices would return to previous levels once demand picked up, Abdul Rahim said it would depend on several factors.

"When the price fetched as high as it did last year, prices of oil and raw material were escalating. But as land area in KLCC is scarce, its property prices won't go down as much."

Savills Rahim & Co managing director Robert Ang pointed out that office space in KLCC were going for some RM8 per sq ft, indicating that the segment remained stable.

However, he expressed some concern over supply and demand for office space in the area come 2011 when another 8 million sq ft to 10 million sq ft of office space is available in the market.

"Although office rental rates are stable right now, the oversupply situation in two years will push rentals down by about 10-15 per cent," he said.

By Business Times (by Zurinna Raja Adam)