Fed rate hikes unlikely to hurt M’sian’s housing market

PETALING JAYA: The U.S. Federal Reserve’s (Fed) looming decision to raise interest rates poses a potential threat to economic growth in emerging market economies, but new analysis published by Juwai IQI suggests that despite these challenges, Malaysia is well positioned for economic growth and improving property market.

Juwai IQI co-founder and CEO of Kashif Ansari Group (picture) said that when the Fed raises interest rates, there can be spillovers to emerging markets like Malaysia. The dollar is strengthening and emerging market currencies tend to fall as inflows of capital decline.

“The (Fed) minutes show that the Fed plans to raise interest rates three times in 2022 and three more times in 2023. Many economists believe that the first of these rate hikes should come in March,” he said in a statement today.

The consensus for Malaysia’s economic growth is 5.8% this year and 5.0% in 2023. Economic growth in 2021 is estimated at 3.5%, despite the impact of the Covid-19 pandemic .

Kashif said when incomes and employment increase in Malaysia, there is usually a positive impact on the property market.

“That is why our forecast for 2022 foresees an increase in deal flow.

“Our agents are already seeing an increase in activity. Prices are still stable, but transactions are increasing. Buyers are more willing to buy real estate than just three months ago. Buyers are more optimistic about the future and about their own economic prospects.

“As the economic acceleration continues in the second half of the year and into 2023, we also expect residential prices to begin to rise in certain submarkets.

“Real estate developers take all of these considerations into account. We expect new projects to come online in desirable locations in 2022. Other projects will be launched for later delivery.

With US interest rates rising, how risky is the situation for Malaysia?

Kasif said, “We believe the country is relatively well positioned to support the Fed’s actions. Malaysia’s large current account surplus will help insulate the economy from rising US rates. Malaysia has earned more from its exports than it has paid for its imports since 1997 and has maintained that surplus during the pandemic.

“It is true that Malaysia has a large external debt, which can be risky at a time when the ringgit is falling. However, the spending that contributed to this debt is what helped Malaysian families and businesses survive the worst of the pandemic. Thanks to this spending, we are better positioned for an economic rebound.

He said that Malaysia also controls inflation and ranks as the 10th best performer on this measure, according to a recent study by The Economist which uses data from the International Monetary Fund and the World Bank. Additionally, Malaysia has significant foreign exchange reserves, better than all but 14 other comparable emerging market economies.

Malaysia’s overall resistance to interest rate hikes puts it roughly in the middle of the pack among similar countries. Its resilience is far superior to that of countries like India, Chile, Turkey and Brazil.

“We believe international demand for Malaysian exports will continue to increase in 2022 due to rapid economic growth in the United States and rebalancing of supply chains. This will help offset any negative impact from the rate hike,” Kasif said.

He noted that Bank Negara Malaysia has a direct impact on the economy. A recent Reuters poll of 23 economists found most expect Bank Negara to delay its next rate hike until at least June or July. The country’s economic recovery is already underway. Waiting until the second half to raise rates will give it time to settle.