Malaysia is one of the most foreign-friendly countries in Southeast Asia for real estate investors. Here, you have access to almost any kind of property types and you can even buy land as a foreigner.
Having said that, if you plan to buy real estate in Malaysia, you must understand how healthy the market is and what to expect for the coming years.
In this article, I will explain what our projection is for Malaysia’s property market in 2020, based on the current climate and historical data. First, I’ll start explaining how the market performed in the past years.
Topics covered in this article:
- Malaysia’s Property Market in Previous Years
- Why has Malaysia’s property market performed badly?
- Most Expensive Cities to Buy Property in Malaysia
- Cheapest Cities to Buy Property in Malaysia
- Market Outlook for 2020
Malaysia’s Property Market in Previous Years
Malaysia’s property market has been in decline since 2012. Even if prices still rise, we’ve seen modest increases in the past five years.
In 2017, prices increased by 5% on average, the lowest rate since 2009. We see a similar trend in the number of transactions, where we only had 311,824 transactions in 2017, a record low since 2012.
Below you can see a yearly comparison by Malaysia’s Valuation and Property Services Department, showing annual changes for house prices from 2012 – Q2 2019.
- 2012: 13.4%
- 2013: 11.2%
- 2014: 9.4%
- 2015: 7.4%
- 2016: 7.1%
- 2017: 6.5%
- 2018: 3.1%
- 2019 Q1-Q2: 1.7%
Looking at 2017 and the first half of 2018, Kuala Lumpur, Selangor, Negeri Sembilan, and Sabah showed more positive results with prices remaining above or around the national average.
Cities like Pahang, Perak, and Terengganu, on the other hand, experienced modest increases well below the national average.
In the fourth quarter of 2018, Sabah and Johor had comparably high increases, with 7.7% and 6.2% respectively. Kuala Lumpur recorded a decrease in the house price index both during the second quarter of 2018 and the first quarter of 2019.
Prices Adjusted for Inflation
I also want to mention that the price increases above are not adjusted for inflation.
If we adjust the prices for inflation, property prices have been in decline in many places throughout 2017, 2018 and 2019, including Kuala Lumpur, Selangor, and Penang.
According to a report published by Edmund Tie & Company, we saw a small quarter-to-quarter price increase of high-end condominiums in Kuala Lumpur during the second quarter of 2018. Rents, on the other hand, declined by -6.3%.
The National Property Information Center backs this statement, claiming that Kuala Lumpur saw a 1.7% year-on-year increase of housing prices. If we adjust to inflation, there’s even been a negative growth.
The number of transactions, as well as the value of the transactions, declined in the first half of 2018 for the residential sector, compared to the previous year.
The commercial and industrial sector has showed more positive results with increases in both the number of transactions and the value of the transactions.
2019 showed more positive results than expected and the residential property market has picked up. It even recorded a higher value of transactions by September 2019 compared to the whole of 2018 for the primary market, which is impressive.
Why has Malaysia’s property market performed badly?
As mentioned, we’ve seen a decline in Malaysia’s real estate market since 2013, there are many reasons contributing to this negative trend. Let’s have a look at some of the major ones.
Oversupply of Property
According to Malaysia’s Deputy Finance Minister, Datuk Lee Chee Leong, there were 40% more new unsold residential units during the first half of 2017, compared to the first half of 2016.
Malaysia has experienced an oversupply of property that has resulted in a price decline. We’ve also seen a property overhang in 2018 that continued well into 2019.
Slow Economic Growth
Malaysia’s economy slowed down more than expected, which affected the median incomes as well as the local purchasing power. Buying property has been too expensive for many Malaysians.
In Q3 2019, the GDP growth was still not impressive and at 4.4%.
Tougher Minimum Investment Requirements for Foreigners
As explained in my separate guide about buying real estate in Malaysia, foreigners are subject to minimum investment requirements, leaving affordable properties for the local market.
Until 2010, foreigners could buy property valued at as little as RM 250,000. This grace period ended the same year, as the government raised the minimum investment requirements to RM 500,000.
In 2014, the government again decided to raise the minimum investment requirement to an astonishing level of RM 1 million, which naturally discouraged foreign buyers to invest in real estate.
Even if Malaysia has raised the minimum investment requirements; consequently, it’s still one of the most foreign-friendly countries in terms of buying regulations.
You can also apply for a renewable 10-year visa referred to as MM2H (Malaysia My 2nd Home) which allows you to buy property with a lower price tag in some states.
Most Expensive Cities to Buy Property in Malaysia
Kuala Lumpur has remained the most expensive place to buy real estate during the last two decades. It doesn’t come as a surprise as it’s the capital, financial hub, and the most popular city among expats and tourists.
By the end of Q2 2019, the average house price was RM 780,564, which is considerably high compared to the national average. Below you can find a comparison of average prices in different states during Q2 2019:
- Kuala Lumpur: RM 780,564
- Selangor: RM 480,863
- Sabah: RM 458,774
- Sarawak: RM 440,645
- Pulau Pinang: RM 437,632
Cheapest Places to Buy Property in Malaysia
If you look for cheap property, Kelantan, Melaka, and Perlis should be your first choice with housing prices averaging of RM 200,000 (USD 48,200). This is less than half of the national average.
Worth mentioning is that price increases are comparably low in places with cheap real estate. Below I’ve listed other cities that have some of the cheapest properties on average in Malaysia:
Market Outlook for 2020
Analysts believe that the market will remain resilient in 2020, despite a big overhang of property. The government will introduce several favorable policies to local and foreign buyers.
Below I have listed some of the main reasons why the market will most likely remain stable in 2020.
Reduced Minimum Investment Requirements
To cope with the large number of unsold apartments and condominiums (valued at RM 8.3 billion in the Q2 2019), the minimum investment requirement will be reduced from RM 1 million to RM 600,000 in urban areas in 2020.
Developers Build Less Projects
Malaysia has struggled with an oversupply of property, but regulations introduced in 2018 seem to have curbed the large supply.
On top of that, many developers have built too many high-priced condominiums that are beyond the reach of Malaysian buyers.
Having said that, we’ll see more developments of affordable units in 2020, allocated to the local population.
Introduction of a Rent-To-Own (RTO) Program
With support for rent-to-own (RTO) program and guarantees to lower mortgage rates, the government will help to boost the market. This program is favorable for first-time buyers who have problems to pay the initial deposit of 10%.
With eased mortgage regulations, the RTO program is predicted to affect the market positively.
Revised Real Property Gains Tax (RPGT)
By changing the base year from 2000 to 2013, sellers will pay a lower RPGT that is predicted to increase the activities in the secondary property market.
This is important to entice buyers to upgrade and to look for newer properties.
Malaysia’s Economic Outlook for 2020
Malaysia’s economy is predicted to grow moderately by 4.8% in 2020, up from 4.7% in 2019. Don’t expect to see a breakthrough in terms of economic growth.
Dealing with Oversupply and Overhang in 2020
The Malaysian government has taken several steps to curtail the problems with the oversupply of real estate. In November 2017, the government decided to put a temporary ban on the construction of high-end condominiums worth more than RM 1 million (around USD 245,000).
According to data released by the National Property Information Center, the stock of residential units declined by 20% for completed projects, and 37% for newly planned projects during the first half of 2018, compared to 2017. That was a positive sign.
In January 2018, the government again introduced new measures and increased the stamp duty from 3% to 4% of property worth more than RM 1 million. This pushed investors and buyers to look for more affordable properties, priced below RM 1 million.
The new regulations were also introduced to lure younger buyers, who are often first time buyers. The Malaysian government previously introduced other new regulations, for example, the Malaysia People’s Housing Bill 2011 (PR1MA), designed to facilitate younger people in buying affordable housing.
As mentioned, we’ve seen an oversupply of primarily high-end units in 2018 and 2019, but with new policies in place, analysts believe that the overhang will be well-managed throughout 2020.
Historical Property Price Data
If you check historical data, the current housing prices are still lower compared to the pre-Asian financial crisis, if adjusted for inflation.
After the Asian financial crisis in 1997, property prices in Kuala Lumpur declined by 37% within a time of just two years. Prices have still not recovered.
There’s plenty of room for further price increases, if we look at historical data.
Increased Interest For the MM2H Visa
Even if Malaysia increased the minimum investment requirements to RM 1 million towards foreign buyers, there’s still a surge in applications for the MM2H program, especially among Chinese buyers.
As mentioned above, under the MM2H program, you get a 10-year renewable visa.
In 2017, the number of applications for MM2H increased by 3.4%, with Chinese buyers making the biggest group of applicants (47%). We see a significant increase among Hong Kong buyers as well.
Even if Malaysia’s real estate market was weak in 2017-2019 and has followed a downward trend since 2013, many analysts and experts are optimistic and foresee a resilient and stable market in 2020.
Malaysia’s economy is doing better compared to previous years, which is a healthy sign.
With the new government’s promise of good governance and its anti-corruption drive, consumer confidence also improves. The current economic climate and historical data speak for a rebound in Malaysia’s real estate market throughout 2019.
That said, even if we have reached the bottom and will most likely see an upward trajectory trend, it will take a while before we see significant growth due to the property overhang. Sellers and developers have become more pragmatic, offering reasonable prices, to avoid excessive inventory.