Malaysia’s housing market cooling rapidly

Malaysia’s house price growth is now noticeably slowing, amidst weakening property demand and falling residential construction activity. 

During the year to Q3 2023, the nationwide house price index rose by a meager 0.1%, a sharp slowdown from y-o-y increases of 4.33% in Q2 2023, 4.81% in Q1 2023, 3.9% in Q4 2022, and 5.15% in Q3 2022, based on figures released by the Valuation and Property Services Department (JPPH). When adjusted for inflation, house prices dropped 1.82% over the same period.

Quarterly, the house price index fell by 1.94% (-2.24% inflation-adjusted) in Q3 2023, its first q-o-q decline since Q3 2021.

Malaysia’s average house price stood at MYR 458,751 (US$96,388) over the same period.

By property type:

  • Terraced house average prices rose by a minuscule 0.8% y-o-y to MYR 441,556 (US$92,776) in Q3 2023. Quarter-on-quarter, prices fell by 1.5%.
  • High-rise residential properties’ average price fell slightly by 1.1% y-o-y to MYR 360,943 (US$75,838) in Q3 2023. On a quarterly basis, prices dropped 2.4%.
  • Detached house average prices were down by 1% y-o-y to MYR 620,071 (US$130,283) over the same period. Quarter-on-quarter, detached house prices fell by 3.2%.
  • Semi-detached house average prices fell slightly by 0.1% y-o-y and by 1.9% q-o-q to MYR 687,370 (US$144,424) in Q3 2023.

Malaysia’s house price annual change

Demand is weakening. In the first half of 2023, the total number of residential property transactions fell slightly by 1% to 114,973 units as compared to the same period in the prior year, according to the JPPH. Likewise, residential transaction value dropped 1.8% y-o-y to MYR 44.78 billion (US$9.41 billion) in H1 2023.

Yet there remain wide regional variations. Despite the nationwide slowdown in property demand, Johor registered the biggest y-o-y rise in the total number of residential property transactions at a whopping 39.9% in H1 2023.

“Market performance exhibits regional variations. For instance, Johor’s residential market has benefited from infrastructure developments such as the proposed Special Financial Zone and the Rapid Transit System connecting Johor to Singapore. These initiatives have increased property transactions and attracted foreign investors, who have been further incentivized by favorable currency exchange rates,” said PropertyGuru in its 2024 Malaysia Property Market Outlook report.

“However, the introduction of a new 4% stamp duty for foreign purchasers may temper the positive effects of currency advantages and recent revisions to the MM2H program. Domestic demand is expected to remain the driving force behind major market segments, with stability projected unless there is a deterioration in economic conditions,” added the report.

Residential construction activity is also declining. During the first three quarters of 2023, the total number of housing starts for landed and high-rise residential buildings dropped by 9.1% y-o-y to 66,360 units, following annual growth of 13.4% in 2022 and 5% in 2021, according to JPPH. Likewise, completions fell slightly by 0.8% y-o-y to 51,123 units in Q1-Q3 2023, after falling in the past six years.

As such, unsold housing stock is also falling. In Q3 2023, residential overhang totaled 25,311 units worth MRY 17.4 billion (US$3.65 billion), down by 14.3% from 29,534 units a year ago, based on figures from JPPH.

The Malaysian economy expanded by a modest 3.7% during 2023, a sharp moderation from a 22-year high of 8.7% in 2022, mainly due to slower global trade, global tech downcycle, geopolitical tensions, and tighter monetary policies, according to the BNM. The economy is projected to grow by 4% to 5% this year.

House prices are still below Asian crisis levels

Amazingly, house prices in Malaysia are still below pre-Asian Crisis 1997 levels, in inflation-adjusted terms, despite the recent housing boom.

Since the Asian crisis, Kuala Lumpur’s house prices have significantly outperformed the rest of the country. After the downturn of 2008-2009, the property market was revitalized with the help of the Greater Kuala Lumpur Plan which included “The MRT Project”. From 2005 to 2015, Kuala Lumpur house prices surged by almost 122% (73% inflation-adjusted).

In contrast, national price rises have been more muted. From 2005 to 2015, Malaysia’s house prices rose by 96.1% (52.4% inflation-adjusted).

From 2016 to 2018, nationwide house prices rose by an annual average of 5.2% (3.3% inflation-adjusted). However, the housing market has slowed in recent years, as the government’s market cooling measures took effect, coupled with the adverse impact of the Covid-19 pandemic. National house prices increased by just 6.9% from 2019 to Q3 2023 and actually almost unchanged when adjusted for inflation.

Malaysia House Price Annual Change graph

Local house price variations

Kuala Lumpur has Malaysia’s most expensive housing, with an average price of MYR 770,543 (US$161,899) in Q3 2023, according to figures from JPPH. It was followed by Selangor at MYR 520,456 (US$109,353), Sarawak at MYR 504,456 (US$105,992), Sabah at MYR 493,971 (US$103,789), Pulau Pinang at MYR 456,141 (US$95,840), Johor at MYR 409,252 (US$85,988), and Negeri Sembilan, at MYR 311,136 (US$65,373).

The cheapest housing in Malaysia can be found in Melaka, with an average price of just MYR 229,004 (US$48,116), and in Perlis, with an average price of MYR 233,842 (US$49,133).

House prices are also below MYR 300,000 (US$63,033) in Terengganu, Kedah, Perak, Pahang, and Kelantan.

Malaysia Average House Prices(MYR) graph

Demand is weakening

Property demand is visibly weakening. In the first half of 2023, the total number of residential property transactions fell slightly by 1% to 114,973 units as compared to the same period in the prior year, according to the JPPH. Likewise, residential transaction value dropped 1.8% y-o-y to MYR 44.78 billion (US$9.41 billion) in H1 2023.

Johor registered the biggest y-o-y rise in the total number of residential property transactions at a whopping 39.9% in H1 2023, followed by Negeri Sembilan (14.6%). Modest increases were also seen in Perlis and Kedah, at 4.3% and 3.2%, respectively.

In contrast, WP Putrajaya saw the biggest fall in residential property transactions of 28.8% y-o-y in H1 2023, followed by WP Labuan (-26.1%), Kelantan (-19.5%), Pahang (-18.1%), Sabah (-15.8%), and Perak (-14%). Other areas that also experienced a decline in transactions included Sarawak (-7.5%), Selangor (-7.4%), Kuala Lumpur (-6.5%), Pulau Pinang (-2.2%), Melaka (-0.5%), and Terengganu (-0.3%).

Selangor dominated the market, accounting for about 22.2% of total residential property transactions in Malaysia in H1 2023, followed by Johor with a 15.6% market share and Perak with a 10.8% share.

In 2022, the strong overall economy coupled with financial easing policies fuelled the property market, with the total number of residential property transactions in Malaysia rising by 22.3% to 243,190 units from a year earlier, following a modest growth of 3.9% in 2021 and a decline of 8.6% in 2020 due to the pandemic, according to JPPH. In terms of value, transactions also increased strongly by 22.6% y-o-y to MYR 94.28 billion (US$19.81 billion) over the same period.

Malaysia Residential Property Transactions graph

Foreign property ownership rules vary per state

The different states in the country vary in their criteria and investment threshold for foreign property ownership.

In Selangor, Malaysia’s most populous and largest state in terms of GDP, foreigners can purchase a property with a minimum value of MYR 2 million (US$ 418,629). However, foreign buyers are limited to landed properties with landed strata titles. In addition, foreigners cannot buy properties at auction, or own agricultural land in Selangor.

In Kuala Lumpur, as well as in Perak, Kelantan, Putrajaya, Labuan, Pahang, and Terengganu, the minimum investment requirement is MYR 1 million (US$ 209,315), while it is only MYR 500,000 (US$104,657) in Perlis. Other states have different foreign property ownership limits too.

Malaysia My Second Home (MM2H) also serves as a special avenue for property purchase in the country. The MM2H scheme provides a renewable 10-year maximum, multiple-entry visa. Eligibility criteria vary between Peninsular Malaysia, Sarawak, and Sabah. One of the benefits of MM2H visa holders includes discounts on the price of certain types of properties available on the market.

In 2024, the minimum property purchase price per state is shown below:

FOREIGN PROPERTY OWNERSHIP LIMITS BY STATE
State Minimum Price MM2H Price
Johor
  • MYR 2 million (US$418,629) for landed property in designated international zones
  • MYR 1 million (US$209,315) for high-rise/strata title property within non-international zones, except for Medini
  • MYR 1 million (US$209,315)
Kedah
  • MYR 600,000 (US$125,589) in Kedah
  • MYR 1 million (US$209,315) in Langkawi
  • MYR 1 million (US$209,315)
Malacca
  • MYR 1 million (US$209,315) for landed title
  • MYR 500,000 (US$104,657)
  • MYR 1 million (US$209,315) for landed title
  • MYR 500,000 (US$104,657)
Negeri Sembilan
  • MYR 1 million (US$209,315) for overhang landed property
  • MYR 600,000 (125,589) for overhang high-rise/strata title property
  • MYR 1 million (US$209,315)
Penang
  • MYR 1.8 million (US$376,766) for overhang landed property on the island
  • MYR 750,000 (US$156,986) for overhang landed property in the mainland
  • MYR 800,000 (US$167,452) for overhang strata/high-rise properties on the island
  • MYR 400,000 (US$83,726) for overhang strata/high-rise properties in the mainland
  • MYR 1 million (US$209,315
Pahang, Terengganu, Putrajaya, Kuala Lumpur, Labuan, Kelantan, Perak
  • MYR 1 million (US$209,315)
  • MYR 1 million (US$209,315)
Perlis
  • MYR 500,000 (US$104,657)
  • MYR 1 million (US$209,315)
Sarawak
  • MYR 600,000 (125,588) in Kuching
  • MYR 500,000 (US$104,657) in other areas
  • MYR 600,000 (125,588) in Kuching
  • MYR 500,000 (US$104,657) in other areas
Sabah
  • MYR 1 million (US$209,315) for landed property
  • MYR 600,000 (125,588) for high-rise property
  • MYR 1 million (US$209,315)
Selangor
  • MYR 2 million (US$418,629)
  • Additional criteria: foreign buyers are limited to landed properties with landed strata titles. Foreigners cannot buy properties at auction or own agricultural land
  • MYR 2 million (US$418,629) for Zones 1 & 2
  • MYR 1 million (US$209,315) for Zone 3
Source: PropertyGuru

MM2H Scheme requirements relaxed

The “Malaysia My Second Home” (MM2H) scheme was relaunched in January 2022 under the Immigration Department, after it was temporarily suspended in July 2020, amidst the Covid-19 pandemic. However, even before the pandemic, the program had already been unofficially closed since September 2019, with claims of 90% application rejection rates.

However, the government announced new, stricter conditions for the program, including the requirement for applicants to have permanent savings of at least MYR 1 million (US$209,315) and a declaration of liquid assets of at least MYR 1.5 million (US$313,972).

Previously the savings required was just MYR 300,000 (US$62,794) to MYR 500,000 (US$104,657).

In addition, applicants must now have an offshore income of at least MYR40,000 (US$8,373) every month, sharply up from MYR10,000 (US$2,093).

Government charges were also increased sharply.

  • The annual visa fee was raised from MYR90 (US$19) to MYR500 (US$105).
  • There will be a processing fee charged by immigration of MYR5,000 (US$1,047) for principal applicants and MYR2,500 (US$523) for each dependent.

Applicants are also required to stay in the country for a minimum of 90 days annually.

“While the move to reactivate the MM2H is a good move, we are of the opinion that certain new requirements need to be revisited in order to stay on course for the purpose it was intended for,” said the Malaysian Institute of Estate Agents (MIEA).

“Malaysia is not the only country which has similar programs, making it harder and will drive the new applicants away,” MIEA added.

Due to stricter criteria, there were only 1,905 MM2H applications approved between November 2021 and September 2023 as compared to 5,610 in 2018, according to RHB Research.

To attract more foreign investors into the country, the government released relaxed requirements for the MM2H scheme in December 2023, after several months of reviewing the said program.

Some of the notable changes include the following:

  1. The visa will now be open to applicants aged at least 30 years, compared with 35 previously.
  2. MM2H visa holders will be required to spend a minimum of 60 days in Malaysia, down from 90 days previously – a condition that may also be fulfilled by dependents such as spouse and children.
  3. The minimum requirement of MYR 40,000 offshore income (US$8,374) – the single biggest obstacle in the previous rules – was removed.
  4. Previously, MM2H eligibility was based on a fixed deposit of MRY 1 million (US$209,315), now, the program will come in three tiers (Silver, Gold, and Platinum), giving the applicants several options.

THREE-TIERED PROGRAM

  Silver Gold Platinum
Fixed Deposit MYR 500,000 MYR 2 million MYR 5 million
Duration 5 years, renewable 15 years, renewable Permanent residency
Minimum real estate purchase price MYR 750,000 MYR 750,000 MYR 1.5 million

“The objective is to simplify the often-criticised MM2H application procedures by introducing more flexibility and clarity,” said Tourism Minister Tiong King Sing.

From its inception in 20o2 to its relaunching last year, around 50,000 applications have been approved from 131 countries. China dominated the market, accounting for about 30% of all approvals, followed by Japan, Bangladesh, the UK, and Korea.

The MM2H program allows foreigners to live in Malaysia for 10 years, provided that they meet the criteria. Successful applicants are also allowed to bring their spouse, an unmarried child under the age of 21, and parents who are over 60 years old.

Residential construction falling again, supply overhang declining

Residential construction activity is falling. During the first three quarters of 2023, the total number of housing starts for landed and high-rise residential buildings dropped by 9.1% y-o-y to 66,360 units, following annual growth of 13.4% in 2022 and 5% in 2021, and declines of 18.6% in 2020, 17.3% in 2019 and 8.6% in 2018, according to JPPH. Likewise, completions fell slightly by 0.8% y-o-y to 51,123 units in Q1-Q3 2023, after falling in the past six years.

Malaysia Residential Starts and Completions graph

As such, unsold housing stock is also declining. In Q3 2023, residential overhang totaled 25,311 units worth MRY 17.4 billion (US$3.65 billion), down by 14.3% from 29,534 units a year ago, based on figures from JPPH.

Condominiums/apartments accounted for 61.1% of the total overhang in Q3 2023. Two- to three-story terraced houses and single-story terraced houses accounted for 14.6% and 7.3% shares, respectively.

Johor accounted for the biggest overhang, at 4,500 units in Q3 2023, followed by Perak (with 3,625 units), Selangor (with 3,296 units), Kuala Lumpur (with 3,111 units), and Pulau Pinang (with 2,947 units).

In the past five years, residential construction in Malaysia has weakened due to the government’s decision to freeze approvals for high-end property developments. Effective November 2017, the restriction covers properties costing over MYR 1 million (US$ 209,315). This was aggravated by the adverse impact of pandemic-related restrictions imposed in 2020 and 2021.

As a result, starts fell by an average of 5.2% annually from 2018 to 2022 while completions declined by an average of 5.1% over the same period.

Total housing stock reached 6,172,433 units as of Q3 2023, up by 1.9% from the same period in the prior year.

Key interest rates kept unchanged

In January 2024, the BNM’s Monetary Policy Committee (MPC) left its Overnight Policy Rate (OPR) unchanged at 3.00%, amidst expectations that economic growth will improve in 2024, supported by the recovery in exports and resilient domestic demand. To tame inflation, the central bank hiked the key rate five times since May 2022, with a cumulative increase of 125 basis points.

“At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects,” said BNM. “The MPC remains vigilant to ongoing developments to inform the assessment of the outlook of domestic inflation and growth. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.”

Malaysia BNM Overnight Policy Rate (OPR) graph

The mortgage market continues to expand, albeit at a slower pace

The size of the mortgage market was about 41% of GDP in 2023, almost unchanged from the previous year but sharply up from 22% in 2008 and 13% in 1996, despite higher interest rates and stricter lending guidelines in recent years.

In December 2023, the total amount of outstanding loans for the purchase of residential property rose by 7.4% y-o-y to MYR781.24 billion (US$163.54 billion), according to BNM.

However, the rate of growth is noticeably slowing. The value of housing loans rose by an annual average of 8.2% from 2016 to 2023, down from annual average growth of 13.1% in 2007-2015 and 19.3% in 2000-2006.

In December 2023:

  • Commercial banks: housing loans outstanding increased by a modest 3.6% y-o-y to MYR480.07 billion (US$100.5 billion).
  • Islamic banks: loans were up strongly by 14% y-o-y to MYR301.1 billion (US$63.04 billion).
  • Investment banks: housing loans rose by 7.9% y-o-y to MYR41.7 million (US$8.7 million).

By value of residential property purchased, as of December 2023:

  • Less than or equal to MRY 250,000: total loans amounted to MRY 142.82 billion (US$29.9 billion), up by 2% from a year earlier
  • More than MRY 250K to MRY 500K: loans totaled MRY 194.25 billion (US$40.66 billion), up by 10.1% from the previous year
  • More than MRY 500K to MRY 1 million: loans volume reached MRY 278.37 billion (US$58.27 billion), up by 10.6% from a year ago
  • More than MRY 1 million: loans volume totaled MRY 165.8 billion (US$34.71 billion), up by 4% from the previous year

The mortgage market is expected to continue growing this year, buoyed by fundamentally strong demand coupled with the support of the government through several housing initiatives.

“The Budget for 2024 has outlined government support for borrowers through the Housing Credit Guarantee Scheme and allocated RM 2.47 billion to public housing initiatives. Additionally, the government intends to revitalize the Bandar Malaysia project, incorporating parklands and green spaces,” said PropertyGuru.

Malaysia Housing Loans Outstanding graph

Kuala Lumpur’s rental yields are moderate

Gross rental yields from apartments in Malaysia remain moderate, averaging 5.16% in Q1 2024, almost unchanged from the previous year, according to a Global Property Guide research conducted in February 2024. The gross rental yield is the rent the landlord will earn - before taxation, vacancy costs, and other costs - compared to the property’s purchase price. While Malaysian property is often not particularly attractive in terms of return on investment, a stable country is a stable market. Residential property prices in Malaysia showed notable growth over the past 20 years.

In Kuala Lumpur, apartments offer gross rental yields ranging from 2.41% to 6.43%, with a city average of 4.35% – which is lower as compared to the national average.

Gross rental yields in other cities and areas in Malaysia in Q1 2024:

  • In Johor Bahru, rental yields range between 5% and 8.86% in Q1 2024, with a city average of 6.25%.
  • Petaling Jaya offers rental returns of around 5.16% to 6.13%, with a city average of 5.48%.
  • Georgetown yields are low, ranging from 3% to 4.41%, with a city average of 3.52%.
  • In Iskander Puteri, apartments offer rental yields from 4.81% to 6.35%, with a city average of 5.5%.
  • In Ipoh, rental yields range from 4.58% to 5.63%, with a city average of 5.19% in Q1 2024.
  • Shah Alam’s rental returns range from 4.54% to 6.65%, with a city average of 5.27%.
  • Subang Jaya can give rental returns from 4.57% to 6.4% in Q1 2024, with a city average of 5.41%.

Small rental market, rents continue to rise

Malaysia has a small rental market. Only 6% of the housing stock is in the private rental sector. About 85% of the total stock is owner-occupied, while government-provided housing accounts for 7% of the stock.

Rents have consistently risen since Q4 2021, buoyed by increasing demand. In Q3 2023, PropertyGuru’s rental price index for Malaysia rose strongly by nearly 24% from the previous quarter.

Though, there are wide local variations in rent movements. “The Rental Demand Index witnessed a notable surge in Penang, Kuala Lumpur, and Selangor during Q3, with Penang registering the most significant rise at 22% QoQ, overshadowing the 12-13% QoQ growth in the other regions,” noted the PropertyGuru report.

“In contrast, Johor’s rental market experienced a minor contraction of 0.2% QoQ. This modest decline in demand can be attributed to a substantial increase in asking rents, reflected by its Rental Price Index climbing 6.8%,” the report added.

Economic growth moderates, inflation eases sharply

The Malaysian economy expanded by a modest 3.7% during 2023, a sharp moderation from a 22-year high of 8.7% in 2022, mainly due to slower global trade, global tech downcycle, geopolitical tensions, and tighter monetary policies, according to the BNM.

The economy is projected to grow by 4% to 5% this year.

“Growth in 2024 will be driven by resilient domestic expenditure and improvement in external demand,” said the central bank. “On the external front, the IMF is projecting a rebound in global trade growth from 0.4% in 2023 to 3.3% in 2024. Together with the tech upcycle, the stronger external demand and continued improvement in the tourism sector will provide support to Malaysia’s exports. On the domestic front, household spending will be supported by continued employment and wage growth.”

The economy had grown by a healthy annual average of 5.3% from 2010 to 2019, before suffering a contraction of 5.5% in 2020 due to the Covid-19 pandemic.

Malaysia GDP Growth and Inflation graph

Inflation stood at 1.5% in January 2024, staying at its lowest level since February 2021, according to figures from the Department of Statistics Malaysia. Nationwide inflation in 2023 averaged 2.9%, from 3.4% in 2022, to 2.5% in 2021, -1.1% in 2020, and 0.7% in 2019.

“Both headline and core inflation have moderated due mainly to lower cost pressures amid stabilizing demand conditions. In 2024, inflation is expected to remain modest, broadly reflecting stable cost and demand conditions,” said the central bank. “However, inflation outlook remains highly subject to changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.”

Labor market conditions remain strong. In December 2023, the unemployment rate stood at 3.3%, unchanged from the previous month but down from 3.6% in the same period in the prior year, according to figures released by the Department of Statistics Malaysia. The country’s jobless rate averaged 3.2% annually in 2009-19 before increasing to 4.5% in 2020 and 4.7% in 2021, mainly due to the Covid-19 pandemic. Unemployment declined to an average of 3.8% in 2022 and 3.6% in 2023.

The number of unemployed people fell by 5.3% y-o-y to 567,800 people in December 2023. Employment persistently increased since August 2021, with the number of employed rising by 2% y-o-y to a record high of 16.46 million.

Malaysia Unemployment Percentage graph

Budget deficit gradually falling, but statutory debt continues to increase

Malaysia’s budget deficit stood at about 5% of GDP in 2023, down from shortfalls of 5.6% in 2022, 6.4% in 2021, and 6.2% in 2020, based on government estimates. Though it remains far higher than the pre-pandemic deficits equivalent to 3.4% of GDP in 2019, 3.7% in 2018, 2.9% in 2017, and 3.1% in 2016.

Overall, the deficit is projected to fall further to 4.3% of GDP this year, in line with the government’s commitment to consolidating the fiscal position for more sustainable public finance.

“The budget contains various measures to broaden the tax base and increase non-petroleum revenues, such as imposing capital gains tax on disposal of unlisted shares by companies and raising the service tax rate to 8% from the current 6%,” said Fitch Ratings. “These measures will help drive revenue growth in 2024 but fall short of underpinning sustainable increases in revenue base as a proportion of GDP in the medium term.”

The Malaysian government’s shortfall soared to more than 6% of GDP during the onset of the Covid-19 pandemic in 2020-21 due to the introduction of several stimulus packages, with a combined value of MYR 380 billion (US$79.8 billion) – equivalent to almost 27% of the country’s GDP.

Malaysia Budget Deficit Percentage of GDP graph

However, the government’s statutory debt remains high at around 62% of GDP in 2023 and is expected to increase to 64% of GDP this year, only 1% away from the 65% statutory debt limit, according to the Ministry of Finance.

The statutory debt ceiling was raised from 55% to 60% in late August 2020, and then again from 60% to 65% in 2021, because of the need to undertake more borrowing during the pandemic. The increase of the ceiling to 60% was the first since July 2009.

The statutory debt is composed of Malaysian Government Securities, Malaysian Government Investment Issues, and Malaysia Islamic Treasury Bills.

“The government remains committed to reducing debt-to-GDP ratio by upholding the Medium-Term Fiscal Framework strategies accompanied by the proposed Public Finance and Fiscal Responsibility Act,” said the MOF report.

Malaysian ringgit weakens

The Malaysian ringgit has depreciated in the past two years, on the back of a decline in oil prices due to sticky US inflation, as well as the strong US dollar amidst the Fed’s successive rate hikes.

In January 2024, the ringgit lost about 11% of its value against the US dollar to reach a monthly average exchange rate of MYR 4.6891 = USD 1, from MRY 4.1893 = USD 1 two years ago.

This partly offsets the nearly 14% depreciation of the ringgit in the two years prior due to political tension, coupled with the adverse impact of the pandemic.

Fitch Solutions expects Malaysia’s current account surplus to widen from 2.1% of GDP in 2023 to 2.6% this year. “Slowing global demand will continue to weigh on Malaysia’s goods trade balance although we foresee exports bottoming out around the middle of 2024,” said Fitch Solutions.

Malaysia Exchange Rate Monthly Averages graph

Political stability, but slow reforms

In July 2018, former Prime Minister Najib Tun Razak was arrested over his role in the multi-billion dollar 1MDB corruption scandal.

Najib denied the allegations, and while in office, Malaysia’s authorities cleared him of all wrongdoing. But the case was reopened after the surprise defeat of the United Malays National Organisation (UMNO), which had governed Malaysia since independence, in the 2018 general elections. Mahathir Mohamad capitalized on public mistrust of Najib to win the general elections, vowing to bring his former protégé to justice. At least 42 charges were filed against Najib for alleged corruption, money laundering, and abuse of power. He was then convicted and ordered to serve a 12-year prison sentence in August 2022, making him the first former Malaysian prime minister to be jailed.

A multi-party, multi-ethnic coalition called Pakatan Harapan (PH) was then formed. PH brought together in 2018 Anwar Ibrahim’s reformist Keadilan party, the main ethnic Chinese party, the DAP, and two anti-UMNO Malay parties, Amanah and Bersatu. Mahathir and Anwar agreed that if they won, the former would be prime minister but handed over to Anwar after two years, the exact process is left unclear.

A crisis over succession followed between the two leaders, who have a long history of unhappy relations. With growing tension within the coalition, Muhyiddin Yassin, another key HP leader, defected with more than 30 MPs to ally with his old party, UMNO. In February 2020, Mahathir tendered his resignation, and the coalition collapsed. To avoid a political crisis, Malaysia’s constitutional monarch, King Abdullah, appointed Muhyiddin Yassin as the new Prime Minister, and a UMNO-led government was formed.

However, seventeen months after taking office, Yassin’s government lost parliamentary support after UMNO’s president Ahmad Zahid Hamidi announced in July 2021 that UMNO is withdrawing its support for Yassin, citing his failed pandemic response. In August 2021, Yassin resigned after attempts to regain support from MPs were unsuccessful. He was replaced by Ismail Sabri Yaakob, who served as MP until November 2022. During his 15 months in office, he lifted the Movement Control Order following the expansion of the vaccination program and oversaw the Twelfth Malaysia Plan.

The November 2022 general elections failed to achieve concluding results, as neither of the leading coalitions – Anwar’s Pakatan Harapan and Yassin’s Perikatan Nasional – have received a simple majority to form a government. The protracted election deadlock forced Malaysia’s king, the Yang di-Pertuan Agong, to decide on a new government and prime minister. On November 24, 2022, Anwar was sworn in as the tenth Malaysian PM. In December 2022, Anwar formed a unity government and appointed members of Parliament from Pakatan Harapan, Gabungan Parti Sarawak (GPS), and UMNO. The new PM has long been an advocate of Islamic democracy and for reforms to the country’s political system.

Despite a polarized political climate, Anwar succeeded in consolidating power in 2023 and brought unexpected stability – but at the price of slow-pedaling much-needed economic and democratic reforms, according to an article published by the East Asia Forum.

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