Malaysia's Residential Property Market Analysis 2024

Surprisingly, Malaysia's house price growth is now noticeably slowing, amidst robust demand and improving residential construction activity.

Table of Contents

• Housing Market Snapshot
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Historic Perspective
• Socio-Economic Context

Housing Market Snapshot

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During the year to Q2 2024, the nationwide house price index rose by a meager 0.88%, a sharp slowdown from y-o-y increases of 3.52% in Q1 2024, 3.85% in Q4 2023, 3.3% in Q3 2023, and 4.33% in Q2 2023, based on figures released by the Valuation and Property Services Department (JPPH). In fact, when adjusted for inflation, house prices actually dropped 1.1% over the same period.

Malaysia's house price annual change

On a quarterly basis, the house price index fell by 2.1% (-2.69% inflation-adjusted) in Q2 2024, its first q-o-q decline since Q3 2021.

Malaysia's average house price stood at MYR471,918 (US$113,740) over the same period.

By property type:

• Terraced house average prices rose by a minuscule 1.1% y-o-y to MYR 453,343 (US$109,352) in Q2 2024. Quarter-on-quarter, prices fell by 1.7%.
• High-rise residential properties' average price fell slightly by 0.7% y-o-y to MYR 367,201 (US$88,447) in Q2 2024. On a quarterly basis, prices dropped 2.3%.
• Detached house average prices were up slightly by 0.5% y-o-y to MYR 643,387 (US$154,802) over the same period. Quarter-on-quarter, detached house prices fell by 2.2%.
• Semi-detached house average prices rose by 2.6% y-o-y but declined by 3% q-o-q to MYR 718,599 (US$173,304) in Q2 2024.

Property demand remains strong. In the first half of 2024, the total number of residential property transactions rose by 6.1% to 121,964 units as compared to the same period last year, according to the JPPH. Likewise, residential transaction value increased 10.4% y-o-y to MYR 49.43 billion (US$11.92 billion) in H1 2024.

Yet there remain wide regional variations. Kelantan registered the biggest y-o-y growth in the total number of residential property transactions in Malaysia, at a whopping 84% in H1 2024, followed by WP Putrajaya (49.2%) and Melaka (33.6%). Strong increases were also seen in Perak (16.2%), WP Kuala Lumpur (12.7%), Sabah (12.7%), Pahang (8.8%), Selangor (6.7%), and WP Labuan (6%). In contrast, Negeri Sembilan saw the biggest fall in residential property transactions of 22.9% y-o-y in H1 2024, followed by Perlis (-18%), and Sarawak (-7.1%).

Residential construction activity is improving this year. In the first half of 2024, starts were up by 1.1% y-o-y to 41,505 units and completions continued to increase by 11.1% to 31,572 units.

Yet unsold housing stock is declining. In the first half of 2024, residential supply overhand totaled 22,642 units worth MYR 14.24 billion (US$3.44 billion), down by 12.3% from the previous period and by 13.9% from a year earlier, based on figures from JPPH.

Malaysia's economic growth slowed to 3.7% during 2023, a sharp deceleration 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.

But economic conditions are improving again this year. In Q2 2024, the country registered a real GDP growth rate of 5.9% as compared to a year earlier, up from an expansion of 4.2% in Q1 2024 and the highest growth since Q4 2022. The economy is projected to grow by 4% to 5% this year.

Demand Highlights

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Demand remains robust

Property demand continues to increase. In the first half of 2024, the total number of residential property transactions rose by 6.1% to 121,964 units as compared to the same period last year, according to the JPPH. Likewise, residential transaction value increased 10.4% y-o-y to MYR 49.43 billion (US$11.92 billion) in H1 2024.

Kelantan registered the biggest y-o-y growth in the total number of residential property transactions in Malaysia, at a whopping 84% in H1 2024, followed by WP Putrajaya (49.2%) and Melaka (33.6%). Strong increases were also seen in Perak (16.2%), WP Kuala Lumpur (12.7%), Sabah (12.7%), Pahang (8.8%), Selangor (6.7%), and WP Labuan (6%). Modest to minimal growth was recorded in Johor and Pulau Pinang, at 3.8% and 0.9%, respectively.

In contrast, Negeri Sembilan saw the biggest fall in residential property transactions of 22.9% y-o-y in H1 2024, followed by Perlis (-18%), Sarawak (-7.1%), Terengganu (-7%), and Kedah (-0.6%).

Selangor dominated the market, accounting for about 22.3% of the total volume and 30.6% of the value of residential property transactions in Malaysia in H1 2024. It was followed by Johor with a 15.3% market share in terms of volume and an 18.2% share in terms of total transaction value.

During 2023, residential property transactions continued to increase, albeit at a much slower pace, amidst an overall economic slowdown. The total volume of transactions in Malaysia rose by a modest 3% to 250,586 units in 2023 from a year earlier, a sharp deceleration from an annual growth of 22.3% in 2022. In terms of value, transactions also increased 7.1% y-o-y to MYR100.93 billion (US$24.34 billion) last year, a slowdown from a growth of 22.6% in the prior year.

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$485,872). 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$243,152), while it is only MYR 500,000 (US$121,603) 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:

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$243,152) and a declaration of liquid assets of at least MYR 1.5 million (US$364,681).

Previously the savings required were just MYR300,000 (US$72,936) to MYR500,000 (US$121,603).

In addition, applicants must now have an offshore income of at least MYR40,000 (US$9,723) every month, sharply up from MYR10,000 (US$2,430).

Government charges were also increased substantially.

• The annual visa fee was raised from MYR90 (US$22) to MYR500 (US$122).
• There will be a processing fee charged by immigration of MYR5,000 (US$1,215) for principal applicants and MYR2,500 (US$607) 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 June 2024, 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 25 years old, 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 spouses and children.
3. The minimum requirement of MYR 40,000 offshore income (US$9,723) - the single biggest obstacle in the previous rules - was removed.
4. The liquid asset requirement of at least MYR 1.5 million (US$364,620) was also removed.
5. Previously, MM2H eligibility was based on a fixed deposit of MRY 1 million (US$243,152), now, the program will come in three tiers (Silver, Gold, and Platinum), giving the applicants several options.

The Malaysian Cabinet has also approved new regulations for the licensing of MM2H agents, requiring all agents to update their licenses according to the new rules.

"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 2002 to its relaunch in 2022, 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 5 to 20 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.

Supply Highlights

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Residential construction improving, supply overhang declining

During 2023, the total number of housing starts for landed and high-rise residential buildings fell by 9.9% y-o-y to 88,114 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. On the other hand, completions increased 4.4% to 74,893 units last year, an improvement from six consecutive years of y-o-y declines.

Residential construction activity is improving this year. In the first half of 2024, starts were up by 1.1% y-o-y to 41,505 units and completions continued to increase by 11.1% to 31,572 units.

"Selangor contributed the highest number with 5,637 units, followed by WP Kuala Lumpur with 5,589 units. By type, supply continued to focus on condominiums/apartments, which formed more than 50.0% (15,835 units) of the national total, while terraced houses formed another 34.6% (10,928 units)," said JPPH.

The unsold housing stock is declining. In the first half of 2024, residential supply overhand totaled 22,642 units worth MYR 14.24 billion (US$3.44 billion), down by 12.3% from the previous period and by 13.9% from a year earlier, based on figures from JPPH.

Perak accounted for the biggest overhang, at 4,161 units in H1 2024 - accounting for about 18.4% of the national total. It was followed by Johor (with 3,219 units), WP Kuala Lumpur (with 3,051 units), Pulau Pinang (with 2,400 units), and Selangor (with 2,328 units).

Condominiums/apartments represented nearly 60% of the total overhang in H1 2024, followed by terraced houses, which accounted for about 24.4% share.

In the past six 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$ 243,152). 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 nearly 6.3 million units as of Q2 2024, up by about 2.2% as compared to a year earlier.

Rental Market

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Kuala Lumpur's rental yields are moderate

Gross rental yields from apartments in Malaysia remain moderate, averaging 5.24% in Q3 2024, slightly up from 5.16% in Q1 2024, according to a research conducted by the Global Property Guide in September 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 2.54% to 5.86%, with a city average of 4.26% - which is lower as compared to the national average.

Gross rental yields in other cities and areas in Malaysia in Q3 2024:

• In Johor Bahru, rental yields are higher, ranging between 4.97% and 8.47% in Q3 2024, with a city average of 6.22%.
• Petaling Jaya offers rental returns of around 5.15% to 6.93%, with a city average of 5.62%.
• Georgetown yields are low, ranging from 3.01% to 4.17%, with a city average of 3.52%.
• In Iskander Puteri, apartments offer rental yields from 5.22% to 6.67%, with a city average of 5.74%.
• In Ipoh, rental yields range from 5.02% to 5.6%, with a city average of 5.33%.
• Shah Alam's rental returns range from 4.53% to 6%, with a city average of 5.13%.
• Subang Jaya can give rental returns from 4.8% to 8.44% in Q3 2024, with a city average of 6.04%.

Small rental market, rising rents

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.

In Q1 2024, PropertyGuru's rental price index for Malaysia rose by 12.4% from a year earlier, following y-o-y growth of 15.2% in Q4 2023, 16.3% in Q3, 17.8% in Q2, and 15.4% in Q1. On a quarterly basis, rental prices were up by 2.2% in Q1 2024.

The increase in rents is notwithstanding the decline in demand for rental properties during the period. In Q1 2024, the rental demand index dropped by 11% from the previous quarter and by 16.6% from a year earlier.

"The Rental Demand Index for Malaysian residential properties saw an 11% quarter-over-quarter decrease, a trend that, while noteworthy, is partly ascribed to seasonal festivities. It would be premature to interpret this as a harbinger of a market correction. In Q1 2023, the Rental Demand Index also declined by 6.2%," said the PropertyGuru report.

Mortgage Market

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Key interest rates kept unchanged

In September 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. The key rate has been unchanged since.

"The Malaysian economy expanded by 5.1% in the first half of 2024. The latest indicators point towards sustained strength in economic activity driven by resilient domestic expenditure and higher export activity," said BNM in its September 2024 Monetary Policy Statement.

"At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects. The MPC remains vigilant to ongoing developments to inform the assessment of the domestic inflation and growth trajectories going into 2025. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability," the central bank added.

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

The size of the mortgage market was equivalent to about 41.7% of GDP in 2023, almost unchanged from the previous three years but sharply up from 22% in 2008 and 13% in 1996, despite higher interest rates and stricter lending guidelines in recent years.

Housing loans continue to increase, albeit 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 July 2024, the total amount of outstanding loans for the purchase of residential property rose by 7.5% y-o-y to MYR 821.93 billion (US$199.24 billion), according to BNM.

By financial institution, as of July 2024:

• Commercial banks: housing loans outstanding increased by a modest 3.7% y-o-y to MYR495.98 billion (US$120.23 billion).
• Islamic banks: housing loans were up strongly by 14% y-o-y to MYR325.87 billion (US$78.99 billion).
• Investment banks: housing loans rose by 6.5% y-o-y to MYR83.9 million (US$20.3 million).

By value of residential property purchased, as of July 2024:

• Less than or equal to MRY 250,000: total loans amounted to MRY93.30 billion (US$22.62 billion), down slightly by 0.8% from a year earlier.
• More than MRY 250K to MRY 500K: loans totaled MRY257.15 billion (US$62.35 billion), up by 9.9% from the previous year.
• More than MRY 500K to MRY 1 million: housing loan volume reached MRY295.45 billion (US$71.62 billion), up by 10.4% from a year ago.
• More than MRY 1 million: loans volume totaled MRY176.03 billion (US$42.67 billion), up by 4.2% from the previous year.

The mortgage market is expected to continue growing during the remainder of the 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.

Historic Perspective

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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 10% from 2019 to Q2 2024 and were actually almost unchanged when adjusted for inflation.

Local house price variations

Kuala Lumpur has Malaysia's most expensive housing, with an average price of MYR 780,728 (US$188,324) in Q2 2024, according to figures from JPPH. It was followed by Selangor at MYR535,390 (US$128,780), Sarawak at MYR520,804 (US$125,281), and Sabah at MYR514,724 (US$123,818).

House prices are above MYR 300,000 in Pulau Pinang, with an average price of MYR471,980 (US$113,817) in Q2 2024; Johor, with an average price of MYR424,976 (US$102,298); and Negeri Sembilan, with a price of MYR318,503 (US$76,669).

The cheapest housing in Malaysia can be found in Melaka, with an average price of just MYR233,255 (US$56,114) in Q2 2024, and in Perlis, with an average price of MYR235,399 (US$56,630).

House prices are also below MYR 300,000 in Kelantan, Pahang, Perak, Terengganu, and Kedah.