KUALA LUMPUR: Property buyers will most likely be undeterred by last week’s rate hike as analysts view the rise in overnight policy rate (OPR) signals the firming up of property prices.

Bank Negara Malaysia (BNM) raised its OPR by 25 basis points (bps) last Thursday after keeping it at 2% for seven consecutive monetary policy committee (MPC) meetings since April 2009.

The central bank said the hike was prompted by a significant improvement in the domestic economy and a moderate rise in inflation amid an improving global landscape.

The rate hike will be followed by a rise in banks’ base lending rates. OSK Research said this would only have a marginal impact on demand sentiment in residential properties.

“This is because the recent improvement in property sales has been primarily supported by the attractive financing schemes offered by most major developers which, most importantly, included interest-absorption-schemes whereby developers bore all financing costs on behalf of buyers up to vacant possession,” the research house said.

It noted that as some developers offered an additional two years’ zero interest after vacant possession, which implied that buyers who bought such properties would not be deterred by interest rate volatility for the next two to five years, if all else remained unchanged. However, developers that offered such schemes would be marginally affected. “Developers who offered such schemes would have to absorb any increase in financing cost on behalf of the buyers for the next two to five years, and will therefore have their earnings margin marginally affected during the period,” OSK said.

Such developers are aplenty, particularly among the big players, OSK added. Those under its coverage are S P Setia Bhd, which OSK downgraded to take profit with target price at RM3.59, and Sunrise Bhd (maintained neutral, target price: RM2.33).

Other developers who may be affected include Mah Sing Group Bhd, IJM Land Bhd, Eastern & Oriental Bhd and DNP Holdings Bhd.

Last Friday, Mah Sing added five sen to RM1.88, IJM Land gained four sen to RM2.25 and E&O rose 1.5 sen to 97.5 sen. Meanwhile, S P Setia shed five sen to RM4.24, while DNP and Sunrise were unchanged at RM1.36 and RM2.15, respectively.

“We believe that the interest commencing 2009 in mid- to high-end landed properties could possibly be a prelude to the next main theme in the upcoming long-term upcycle early next decade, which could last three to five years, similar to what the years of 2004/05 were for the 2007/08 major upcycle for high-end condos,” OSK said.

It added this was due to the fallout in high-end condos in 2007/08 and expectation that the outlook for the sub-segment would be less sanguine going forward have forced the excess capital among avid real estate investors to take refuge in higher-end landed properties, which was the only real estate asset class yet to experience any bubble since the 1997/98 Asian financial crisis.

Additionally, the entry of buyers looking to upgrade their properties to mid- to high-end landed properties appeared to have picked up steam, thus bolstering the performance of this sub-segment of late.

“The latter catalyst gives further justification to these avid real estate investors to park their money in mid- to high-end landed properties, thus creating a positive feedback loop that will spark speculation and the rise of this sub-segment as the main theme for the next upcoming long-term up cycle,” it said.