House prices static in Malaysia
March 19, 2018
Malaysia's average house price stood at MYR 404,835 (US$ 103,379.55) in Q3 2017.
By property type:
- Terraced house average prices rose by 7.1% (+ 2.6% inflation-adjusted) to MYR 354,725 (US$ 90,583) during the year to Q3 2017.
- High-rise residential properties' average price rose by 4.2% y-o-y (- 0.2% inflation-adjusted) to MYR 344,201 (US$ 87,896).
- Detached house average prices were up by 2.9% y-o-y (- 1.39% inflation-adjusted) to MYR 670,916 (US$ 171,327 ).
- Semi-detached house average prices increased by 2.9% y-o-y (- 1.37% inflation-adjusted) to MYR 647,941 (US$ 165,459).
Melaka registered the highest annual increase with a house price rise of 5.4% (+ 1% inflation-adjusted) during the year to Q3 2017. It was followed by Selangor (5.1%), Kuala Lumpur (5.1%), Negeri Sembilan (5.1%), Sabah (4.6%), Johor (4.5%), and Sarawak (4.3%).
Other states saw moderate house price hikes including Pulau Pinang (3.6%), Kedah (3.5%), Perlis (3.2%), Pahang (3.1%), and Kelantan (3%). During the year to Q3 2017, the weakest house price rises were seen in the states of Perak and Terengganu, which had annual price increases of 1.8% and 1.4%, respectively.
Kuala Lumpur has the most expensive housing in Malaysia, with an average price of MYR 785,327 (US$ 200,543) in Q3 2017. On the other hand, Kelantan had the cheapest housing, at an average price of MYR 164,300 (US$ 41,956).
From January 1, 2018, stamp duty on properties worth more than MYR 1 million (US$ 225,759) was increased from 3% to 4%. This is expected to lower demand for more expensive properties.
Although the housing market remains weak, some experts expect the market to improve, as the Malaysian economy got stronger in 2017.
"The signs of recovery are slowly emerging at certain good locations," says Real Estate and Housing Developers Association Malaysia (Rehda) President Datuk Seri FD Iskandar.
"Developers are shifting their focus to affordable housing to cater for the demand. Projects in good locations as well as those near public transport hubs will receive good response,"
"Overall, the domestic property market in 2017 is still softening but at a slower rate compared with 2016. The number of launches by developers, as well as sales performance, is declining," says Sulaiman Saheh , director of Rahim & Co International Sdn Bhd.
"Developers are strategising to provide products in demand targeting the mass market, mainly affordably-priced products, albeit with smaller built-ups."
Foreigners can purchase any kind of property with a minimum value of MYR 1 million (US$250,250) as of 2014. They are allowed to purchase up to two residential properties - two condominiums (max. 50% foreign ownership within a block) OR one condominium and one of the following:
- Terrace or linked houses above two storeys, but limited to 10% of the total number of units built of this type
- Lands/bungalows and semi-detached houses, but limited to 10% of units built of these types
Malaysia: gross rental yields have moderated, and are now 2.3% to 5.4%
Condominium prices in Kuala Lumpur are reasonable at between US$1,800 to US$2,000 per square metre (sq. m.)
A stable country, a stable 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 rather stable for the past 15 years.
Limits to capital appreciation. Given that Malaysia is a large place and relatively thinly populated, there are limits to capital appreciation prospects (arguably, except in ‘dormitory town’ areas neighbouring Singapore). Therefore, the prime attraction of property ownership in Kuala Lumpur is income.
Gross rental yields have however fallen significantly:
- Condominiums of 120 sq. m. have gross returns of 4.5%, but two years ago, our researchers found that rental yields averaged over 8% for this size.
- Bungalows have really low gross rental yields at around 2.5%, and again, have fallen significantly.
Conclusion: Malaysian property is less attractive as an investment than it has been for many years, given the falling rental yields.
Round trip transaction costs are very low in Malaysia. See our Malaysia transaction costs analysis Dubai transaction costs analysis and our Malaysian home buying costs compared with other countries in Asia.
Rental income tax is high in Malaysia
Rental Income: The net rental (and other) income of nonresidents is taxed at a flat rate of 26%, 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%.
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.
Malaysia is pro-tenant in practice
Because 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.
Ringgit rebounded in 2017; strong economic growth persists in 2018During the last quarter of 2017, the Malaysian economy expanded by 5.9% y-o-y, slightly down from 6.2% growth during the previous quarter. The Malaysian economy had robust growth of 5.9% for the whole year 2017, following economic expansions of 4.2% in 2016, 5% in 2015, 6% in 2014, 4.7% in 2013, 5.5% in 2012, and 5.3% in 2011, according to the International Monetary Fund (IMF).
From 2002 to 2008, economic growth averaged 5.7%, but growth fell sharply to 1.5% in 2009, during the global financial crisis. In 2010 GDP growth bounced back, surging by 7.5%.
The economy is expected to continue its robust growth in 2018, albeit at a slower pace, ranging from 5% to 5.5%, according to the IMF. “Risks to the near-term outlook are balanced. Strong global demand for electronics, which has benefited Malaysia’s exports, could last longer than anticipated, while downside risks include policy uncertainty in advanced economies and tighter global financial conditions. Going forward, striking the right balance in policies will be key," according to a statement from IMF team leader Nada Choueiri.
In January 2018, Malaysia's nationwide annual inflation was at 2.7%, down from 3.5% the previous month, according to the Department of Statistics Malaysia. Malaysia's inflation in 2017 had been of the country's highest rates in a decade at 3.7%, up from 2.1% in 2016. Last year's price surge was mainly attributed to fuel prices. Other factors include higher import prices and factory gate prices.
The BNM's Monetary Policy Committee (MPC) decided to raise the central bank's Overnight Policy Rate (OPR) by 25 basis points in January 2018, after implementing a 3% OPR for 18 consecutive months since July 2016.
Unemployment was at 3.3% in December 2017, slightly down from the 3.5% unemployment rate in the same period last year, based on the figures from the Department of Statistics Malaysia.
From being one of Asia's worst-performing currencies in 2016, the Malaysian ringgit became one of the region's best performing currencies in 2017, gaining more than 10% against the dollar, as compared to the end of 2016. Analysts attributed these gains to the country's improved balance of payments (BOP) in 2017, thanks to stronger exports and relatively higher oil prices, as well as to the continued weakening of the US Dollar. The Malaysian ringgit (MYR) had been one of Asia's worst-performing currencies in 2016, falling by more than 20% against the US dollar over the previous two years. The situation worsened after Donald Trump's win in the US presidential elections, causing capital to flow back to the US.
"The ringgit’s problems also lie with the fact that the 1MDB scandal has not left the headlines despite a lot of rhetoric otherwise, and this is agitating global investors," according to foreign exchange firm Oanda's senior trader, Stephen Innes.
The 1MDB scandal is an ongoing political scandal about Malaysian Prime Minister Najib Tun Razak transferring around US$ 700 million to his personal account. The 1Malaysia Development Berhad (1MDB) is a strategic development company run by the Malaysian government. Set up in 2009, it aims at building strategic investments to boost the country.
The scandal gained attention in early 2015, with reports of the company amassing a total of MYR 42 billion (approximately US$ 11 billion) worth of debt, and missing the payment of this debt to banks and bondholders. The Wall Street Journal exposed the channeling of US700 million from 1MDB to Prime Minister Najib on July 2, 2015, which was later denied by PM Najib.