Market in Depth

Malaysia's housing market continues to weaken

Lalaine C. Delmendo | August 19, 2021

After a decade-long house price boom, Malaysia's housing market has been cooling in the past two years due to massive oversupply. There are YR 18.48 billion (US$ 4.41 billion) unsold apartments in Malaysia's major cities, the result of a serious overbuilding of top-end properties during the recent boom.  But the measures taken by the government to buoy the market are (partly) working.

To combat this over-building, the government has introduced multiple measures to control speculation and discourage developers from over-building. Stamp duty was increased from 3% to 4% on properties worth above MYR 1 million (US$ 238,578). The government also introduced an additional 5% in real property gains tax (RPGT) on sales of properties owned from 6 years and beyond.  However these measures have been temporarily relaxed to deal with the impact of the pandemic on the property market.

The COVID-19 pandemic has crippled demand, adding to downward pressure on house prices.  As a result, Malaysia's house price index rose a minuscule 0.3% during the year to Q1 2021, down from the previous year's 1.9% y-o-y increase, according to the Valuation and Property Services Department (JPPH). This is also a sharp slowdown from an annual price growth of 7.5% from 2010 to 2019.  When adjusted for inflation, house prices actually fell 1.3% y-o-y in Q1 2021.

On a quarterly basis, the house price index increased 1.7% (but fell by 0.2% in real terms) in Q1 2021.

Malaysia's average house price stood at MYR 432,220 (US$103,106) in Q1 2021.

During 2020:
  • Terraced house average prices rose by 2% y-o-y to MYR 400,252 (US$95,491).
  • High-rise residential properties' average price fell by 0.8% y-o-y to MYR 338,628 (US$80,789).
  • Detached house average prices were down by 1.1% y-o-y to MYR 661,623 (US$157,849).
  • Semi-detached house average prices fell slightly by 0.6% y-o-y to MYR 661,178 (US$157,743).

Kuala Lumpur has Malaysia's most expensive housing, with an average price of MYR778,143 (US$185,648) during 2020, followed by Selangor, at MYR 486,659 (US$116,106); Sarawak, at MYR 475,899 (US$113,539); Sabah, at MYR 456,262 (US$108,854); and Pulau Pinang, at MYR 438,301 (US$104,569).

The cheapest housing in Malaysia can be found in Melaka, with average prices of just less than MYR 200,000 (US$47,716).

Malaysia house prices
The Malaysian economy shrank by 5.6% in 2020, in stark contrast to an annual growth of 4.3% in 2019 and the biggest decline since the Asian Financial Crisis in 1998. The economy grew by a healthy annual average of 5.3% from 2010 to 2019.

The economy is expected to return to growth this year, with a projected real GDP expansion of 6.5%, according to the International Monetary Fund (IMF).

Analysis of Malaysia Residential Property Market »

Rental Yields

Reasonable property prices in Malaysia; gross rental yields are now 2.62% to 6.52%

Gross rental yields from apartments in Malaysia remain moderate. 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 a notable growth over the past 20 years.

We may say that condominium prices in Kuala Lumpur range from USD 150,000 to USD 1,400,000 and rents range from around USD 300 to USD 2,000 per month. In Kuala Lumpur City Centre (KLCC), it would not be unusual for property prices here to be USD 299,936 (1-bedroom), USD 392,269 (2-bedroom) and USD 653,695 (3-bedroom), with rents of USD 854 (1-bedroom), USD 1,077 (2-bedroom) and USD 1,745 (3-bedroom). Earning a rental yield of around 3%.

In Ampang, another area popular with expats, one might find prices of USD 158,096 (1-bedroom), USD 213,559 (2-bedroom) and USD 183,056 (3-bedroom), with rents from USD 476 (1-bedroom), USD 640 (2-bedroom) and USD 855 (3-bedroom). Earning rental yields of around 3% to 5%.

Another popular choice for expats is the Damansara Heights, only 17 minutes by LRT/MRT or 30 minutes by bus away from KLCC - a residential suburb where mostly wealthy locals reside. Apartment and condominium prices in this area might cost USD 309,135 (1-bedroom), USD 393,332 (2-bedroom) and USD 567,273 (3-bedroom), with rents of USD 846 (1-bedroom), USD 1,035 (2-bedroom) and USD 1,692 (3-bedroom). Earning a rental yield of around 3%. Property is much pricier here than in KLCC and Ampang.

Bangsar is another expat-friendly neighborhood and apartment and condominium prices in this area might be  USD 203,268 (1-bedroom), USD 254,378 (2-bedroom) and USD 348,717 (3-bedroom), with rents from USD 671 (1-bedroom), USD 882 (2-bedroom) and USD 1,217 (3-bedroom), earning a rental yield of around 3% to 4%.

The return is significantly better for larger apartments at around 4% to 6% than for small apartments at about 3%.

Round trip transaction costs are very low for foreigners buying residential property in Malaysia. See our Residential transaction cost analysis for Malaysia.

Read Rental Yields »

Taxes and Costs

Rental income tax is high in Malaysia

Rental Income: The net rental (and other) income of nonresidents is taxed at a flat rate of 24%, without any personal relief.

Capital Gains: For non-citizens and non-residents, real property gains tax (RPGT) is levied on disposals of properties held for more than five years at a flat rate of 5%. As of 2014, different RPGT rates apply for citizens, non-citizens, and companies.

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%.

Read Taxes and Costs »

Buying Guide

Buying costs are very low in Malaysia

Total round-trip costs are around 3.4% to 6.75% of the property value, inclusive of the estate agent's commission of 2.75% for the first MYR500,000 (US$135,135), and 2% thereafter. Roundtrip transaction costs in Malaysia are among the lowest in Asia.

Read Buying Guide »

Landlord and Tenant

Malaysia is pro-tenant in practice

Malaysia luxury housesBecause Malaysia's court system is inefficient and slow, rental market practice is pro-tenant, even though the law is pro-landlord.

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.

Read Landlord and Tenant »


Malaysia’s economy to recover this year, labour market improving

The Malaysian economy shrank by 5.6% in 2020, in stark contrast to an annual growth of 4.3% in 2019 and the biggest decline since the Asian Financial Crisis in 1998. The economy had grown by a healthy annual average of 5.3% from 2010 to 2019.

The economy is expected to return to growth this year, with a projected real GDP expansion of 6.5%, according to the International Monetary Fund (IMF).

Malaysia gdp inflation
“The Malaysian economy is set to recover in 2021, with growth projected at 6.5 percent, driven by a strong recovery in manufacturing and construction,” said the IMF.

Though it noted that risks and uncertainties remain at heightened levels. “An intensification of the pandemic and materialization of other risks could derail the recovery. A protracted spread of the virus could prompt the authorities to tighten health and physical distancing measures, with negative impact on growth. Also on the downside, Malaysia’s open economy is vulnerable to escalating trade tensions and weaker-than-expected growth in trading partners.”

The labour market is improving. In May 2021, the unemployment rate stood at 4.5%, down from 5.3% a year earlier and the lowest jobless rate since the onset of the outbreak in March last year, according to figures released by the Department of Statistics Malaysia. The country’s unemployment rate averaged 3.2% in 2009-19.

The number of unemployed people fell 11.9% y-o-y to 728,100 in May 2021 while employment rose by 2.4% to 16.1 million.

Inflation was 4.4% in May 2021, sharply up from the previous year’s -2.9%, mainly due to a sharp increase in transport prices, according to the Department of Statistics Malaysia. Malaysia’s inflation in 2020 was -1.1%, the lowest ever recorded.

Malaysia unemployment
Malaysia’s budget deficit stood at 3.2% of GDP in 2020, following shortfalls equivalent to 3.4% of GDP in 2019, 3.7% in 2018 and 3% in 2017, according to the Ministry of Finance.

However, the shortfall is projected to increase sharply to more than 6% of GDP this year. Since last year, Malaysia has introduced seven stimulus packages, with a combined value of MYR 380 billion (US$91 billion) – equivalent to almost 27% of the country’s GDP. The latest stimulus aids included: PERMAI, worth MYR 15 billion (US$3.6 billion), announced in Janaury 2021; Pemerkasa Plus worth MYR 40 billion (US$US$9.5 billion), announced on June 1, 2021; and Pemulih worth MYR 150 billion (US$36 billion), announced on June 28, 2021.

As a result, the government’s statutory debt is expected to reach 58.5% of GDP this year, up from 54% in 2020, 52.7% in 2019 and 51.2% in 2018.

The Malaysian ringgit at 10-month low against the US dollar
In early July 2021, the United Malays National Organisation (UMNO), the biggest political party in the country’s ruling coalition, withdrew support for Prime Minister Muhyiddin Yassin and called for his resignation. As a result, the ringgit immediately lost about 3.2% of its value against the US dollar to reach an average exchange rate of MYR 4.1694 = USD1  in mid-July 2021 from MYR 4.0368  = USD 1 in January of this year.

Malaysia exchange rate
From April 2020 to December 2020, the domestic currency regained about 7.3% of its value against the US dollar, after falling by 10.7% over the previous two years mainly due to a slump in crude prices.

Malaysia recorded a current account surplus of MYR 62.1 billion (US$14.8 billion) in 2020, the largest since 2011.