Data from the third quarter of 2020 about the general state of the property market have been recently released by the National Property Information Centre (Napic), an institute that is a part of the Valuation and Property Services Department. A 7.4% increase in the volume of transactions from the third quarter of 2019 indicate a strong demand for real estate at the end of last year, which is a strong recovery from the slump during the pandemic. However, there is also a 2.4% contraction in the value of transactions when compared to the third quarter of 2019, which means many transactions in Q3 2020 involve properties that are lower in price.
Properties in the retail and commercial sector took the hardest hit with a 10% reduction in terms of volume, and a 37.4% reduction in value of transactions in Q3 2020 when compared to Q3 2019. Residential properties meanwhile experienced a year on year 5.1% increase in volume and 6.9% increase in value of transactions in Q3 2020.
This increase in residential property transactions can be attributed to the incentives and assistance offered by the government to promote home ownership which was announced in the middle of 2020. This campaign provides stamp duty exemptions on instruments of transfer and loan agreements for the purchase of residential homes between the value of RM300,000 and RM2.5 million. These exemptions were again put forward during the 2021 Budget announcement where full stamp duty exemptions on instruments of transfer and loan agreements are to be applied to any purchase of a first home valued at no more than RM500,000. This contributes to savings of about 2% of the property value in terms of miscellaneous fees and charges in addition to the value of the property and loan interest.
Another contributing factor that spurred the demand for residential properties is the record low Overnight Policy Rate (OPR) set by Bank Negara since July 2020. The OPR has been maintained at 1.75% since then, with another meeting to revise the rate scheduled in June 2021. This resulted in much cheaper loans for prospective homeowners as banks across the country reduced their base rate. There is no better time to shop for home loans as most banks offer an effective lending rate of around 3.0% to 3.2%, with some as low as 2.85%. The OPR is not expected to increase anytime soon as Bank Negara is looking to encourage spending and alleviating deflationary pressure over the year 2020, where the Consumer Price Index (CPI) declined 1.4% in December 2020 from the year before. Thus, the cheaper rates can most likely be enjoyed for a significant tenure of the loan if a full flexi loan is preferred.
For a first home owner looking for a property valued at RM500,000, with a 10% deposit and a 30 year loan tenure, the total cost of ownership calculated at the interest rates of 2.8%, 3.05%, 3.3%, and 3.55% range from RM715,649 to RM781,981. The calculator used to compute these values can be accessed from here. At the interest rates of 2019, it would have cost roughly RM70,000 more to purchase a property of similar value. It is truly a great opportunity at this moment for prospective first home buyers to purchase a home this year.