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 type and you can even buy land.
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 year.
In this article, I explain what my projection is for Malaysia’s property market in 2021, based on the current climate and historical data.
First, we review how the market performed in the past years and continue with a market outlook for 2021.
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 2021
Malaysia’s Property Market in Previous Years
Malaysia’s property market has been in decline since 2012 and we’ve seen modest price increases.
In 2017 for example, prices increased by 5% on average, the lowest rate since 2009. We see a similar trend in the number of transactions with only 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 to Q2 2019.
- 2012: 13.4%
- 2013: 11.2%
- 2014: 9.4%
- 2015: 7.4%
- 2016: 7.1%
- 2017: 6.5%
- 2018: 3.1%
- 2019 Q3: 1.4%
- 2020 Q2: 0.4%
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.
With that said, it’s evident that the market has suffered since 2012 as it’s been on a downward trajectory. Comparing Q2 2020 with 2012, for example, we see a difference of 13% in the increase of property prices.
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 shown 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 price declines. We’ve also seen a property overhang in 2018 that continued well into 2019 and 2020.
The country will continue to suffer from a property overhang due to previous policies and a great reduction of buyers due to the COVID-19 pandemic.
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%.
Looking at 2020, the economy is expected to contract by -4.5%, putting the state in an even worse position. The only market winner in Asia is so far Vietnam, predicted to grow by 2.9% in 2020.
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 a 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 a property with a lower price tag in some states.
How was Malaysia’s property market affected by the COVID-19 pandemic in 2020?
All real estate markets have been affected badly in Asia and Malaysia is not an exception.
According to the PropertyGuru Malaysia Property Market Index, the market saw a small gain of 0.38% in asking prices during Q2 2020 compared to the year before.
The Valuation and Property Services department (JPPH) shows similar data and an increase of merely 0.40% in its Malaysian House Price Index during the same time.
According to PropertyGuru Malaysia’s Property Market Index (MPMI), we’ve seen price reductions in the four biggest markets.
Kuala Lumpur, Selangor, and Johor all experienced price decreases, and analysts believe that the downturn might stick around for long.
Johor showed the worst results with price reductions of -2.97% during Q3 2020. Kuala Lumpur, on the other hand, showed a reduction of 1.35% and Selangor 1.04%.
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:
Malaysia’s Property Market Outlook for 2021
The market is predicted to remain neutral in the aftermath of the COVID-19 pandemic and the weak market climate prior to 2020.
The conditional movement control order (CMCO) which was introduced by the government has taken a toll on the economy and Malaysia was from time to time the worst affected country in Southeast Asia.
With that said, there are signs that the market might recover faster than some might believe. According to research, as many as 81% of Malaysians want to buy a house by the end of 2021.
At the same time, the government has introduced the Real Property Gains Tax (RPGT) exemption that will most likely encourage more buyers to invest in real estate.
Many projects have been put on hold, so don’t expect too much in terms of new supply. Prior to the COVID-19 outbreak, Malaysia suffered much from an oversupply of property and still does.
What changes were introduced to boost the property market prior to 2020?
Analysts believed that the market would remain stable throughout 2020, something that was inevitably changed due to the COVID-19 pandemic.
Below are some of the changes introduced that were set to boost the market and lure both more local and foreign investors.
Reduced Minimum Investment Requirements
To cope with a large number of unsold apartments and condominiums (valued at RM 8.3 billion in 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 in affordable units in 2020, allocated to the local population.
Introduction of a Rent-To-Own (RTO) Program
With support for the 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 Problems with Oversupply of Property
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 for 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.
Malaysia has followed a downward trend since 2012 and the economy is predicted to contract by as much as -4.5% in 2020. Prices have fallen in all the major markets and where Johor was hit the hardest.
According to experts, it might take time for the market to recover, something that will happen during the second half of 2021, most likely.
Prior to 2020, the government introduced a number of changes to lure more local and foreign investors. With the new government’s promise of good governance and its anti-corruption drive, consumer confidence also improves.
Prices have fallen throughout 2020 which leaves room for investors to find discounted units, something that can pay off at a later stage and when the market rebounds.
For up-to-date information and reliable advice, be sure to work with an experienced partner that has boots on the ground and that knows where you can find the best deals.
There are many actors out there who are desperate to make money during this economic downturn. Even if you can find great deals at the moment, it’s also time to stay extra cautious.