The national house price index rose 7.29% during the year to end-Q3 2012 (5.86% inflation-adjusted), the lowest year-on-year increase since Q2 2010, according to the Valuation and Property Services Department (JPPH). On a quarterly basis, house prices actually fell by 1.8% in Q3 2012 (-2.11% inflation-adjusted), the first quarterly drop since Q4 2008.
Kuala Lumpur has the country’s most expensive housing, with average house prices of RM497,535 (US$164,241), followed by Sabah and Selangor, with average prices of RM382,414 (US$126,239) and RM372,499 (US$122,966), respectively.
By property type, nationally:
- The average price of terraced houses rose by 7.8% y-o-y to RM211,957 (US$69,969) in Q3 2012
- The high-rise price index soared 9.6% during the year to Q3 2012, to an average price of RM206,973 (US$68,324)
- The average price of detached houses increased 4.8% y-o-y to RM375,202 (US$123,858) in Q3 2012
- The average price of semi-detached houses rose by 5.7% to RM359,849 (US$118,790) over the same period
Selangor saw 13.4% house price increases over the same period (10.8% inflation-adjusted), followed by Sabah (9.8%), Terengganu (8%), Pulau Pinang (7.9%), Negeri Sembilan (7.2%) and Sarawak (7.1%). Kuala Lumpur’s house price index rose 2.4% y-o-y to Q3 2012 (0.1% inflation-adjusted). Pahang and Perak had the lowest y-o-y price growth, at 1.4% and 1.9%, respectively.
Residential construction is buoyant
Housing approvals rose 47.4% in 2012 to 235,249 units, according to the Ministry of Housing and Local Government. The value of residential construction work rose 24.9% on the year in Q4, to RM5.76 billion (US$1.9 billion).
From 2002 to 2012, the “Malaysia My Second Home” (MM2H) programme attracted 19,488 foreign buyers, mostly from China, Bangladesh, Britain, and Iran. 1,659 properties worth RM1.5 billion (US$495 million) were purchased under the programme from 2007 to 2012.
While the Overnight Policy Rate (OPR) has stayed at 3%, in January last year the BNM implemented restrictive lending guidelines. Housing loan eligibility must now be based on net income, not gross. The BNM has also lowered the loan-to-value (LTV) mortgage cap on third house financing from 90% to 70%. The Real Property Gains Tax (RPGT) was also re-activated by the government.
Housing slowdown ahead
The Malaysian property market is expected to see slower growth in 2013. The upcoming general elections, expected in April 2013, are adding to the uncertainty.
“Residential properties will still do well in terms of numbers. For certain areas, prices will increase. But overall for this year, there will be an adjustment in terms of prices, which are expected to moderate,” said Faizan Abd Rahman of Valuation and Property Services Department at the Ministry of Finance.
This was supported by Tang Chee Meng of Henry Butcher Malaysia, who said that residential property prices in Malaysia will continue to rise in the coming months, but at a slower rate—possibly in single digits.
Malaysia’s economy expanded by 5.6% in 2012, following 5.1% growth in 2011 and 7.2% in 2010. This year’s GDP growth is projected at more than 5%, partly driven by the ongoing implementation of projects under the Economic Transformation Programme (ETP).
Analysis of Malaysia Residential Property Market »
The extraordinary stability of residential property prices in Malaysia – rising in some years by 2% or 3%, falling in other years by a few per cent – means that the observer is never shocked by a sudden boom or price-collapse. In inflation-adjusted terms, prices have been almost completely stable for the past 15 years.
Given that Malaysia is a large place and relatively thinly populated, there are obvious limits to capital appreciation prospects (arguably, except in ‘dormitory town’ areas for neighbouring Singapore).
Therefore, the prime attraction of property ownership in Kuala Lumpur is income. Gross rental yields have fallen somewhat over the past year. Rents have not kept pace as nominal prices have risen. Yet the decline has been gentle, almost invisible. The 120 sq. m. condominium category remains the best-paying investment, with gross returns of 7%, but last year, our researchers found that rental yields averaged over 8% for this size.
Gross rental yields on condominiums generally range from 5% to 7%. Bungalows have lower yields, typically just over 4%.
Capital Gains: No real property gains tax (RPGT) is levied on disposals of properties held for more than five years.
Inheritance: No inheritance or gift taxes are levied in Malaysia.
Residents: Residents are taxed only on their Malaysian-sourced income at progressive rates, from 2% to 26%.
Rent: With the passage of the Control of Rent (Repeal) Act of 1997, rent control was abolished in 2000.
However although the law states that rents can be freely negotiated, rent increases can be appealed to the courts, if the tenant feels the increase is too high.
Tenant Security: At the end of the contract, the landlord has the right to vacant possession of the premises without payment of any compensation, though a notice to vacate must be given to the tenant three months before the expiration of the contract. Any rent adjustment must be mutually agreed upon. Tenancy agreements usually last for a year.
Recovering unpaid rent is difficult. The court system is inefficient and very costly compared to the amounts recovered.
Malaysia’s economy expanded by 5.6% in 2012, after GDP growth of 5.1% in 2011 and 7.2% in 2010, according to Bank Negara Malaysia.
The Malaysian economy is expected to remain bullish this year, with GDP growth projected at more than 5%, partly driven by the ongoing implementation of projects under the Economic Transformation Programme (ETP), based on government forecast.
In December 2012, consumer prices increased 1.2% from a year earlier, the slowest pace in almost three years. In 2013, the annual inflation rate is expected between 2% and 2.5%, mainly due to the implementation of minimum wage policy, bonus payments to civil servants and cash handouts ahead of elections. A new minimum wage was introduced giving private sector workers in peninsular Malaysia a monthly minimum salary of MYR 900 (US$ 297), while workers in the Sarawak and Sabah will receive MYR 800 (US$ 252).
Bank Negara Malaysia has kept its overnight policy rate (OPR) unchanged at 3% for ten consecutive meetings.
The nationwide unemployment rate rose to 3.3% in December 2012 from 2.9% in the previous month, according to Department of Statistics Malaysia.
Will Anwar Ibrahim sweep to power?
Malaysian Prime Minister Najib Razak dissolved parliament on April 3, 2013 to call for national elections. Voting must be within two months, but is widely expected to take place during April.
The National Front coalition has been in power for over five decades, since independence from Britain in 1957. It won the 2008 general elections with less than two-thirds parliamentary majority, its poorest result yet.
Opposition leader Anwar Ibrahim’s three-party alliance is running on an anti-corruption, anti-crony platform. It has pledged to roll back racial preferences for the ethnic Malay majority, and trim the budget deficit. Anwar heads an ideologically disparate multi-ethnic opposition, the People’s Alliance coalition, which includes the Pan-Malaysian Islamic Party that wants to enforce Shariah law, and the Chinese-oriented Democratic Action Party, and his own People's Justice Party. Its victory might be initially destabilizing, given that Malaysia has no history of such democratic transitions.