In 2022, Property marketing in Malaysia appears to be stabilizing, following the COVID-19 crisis’s disruptive effects. Increasing infection rates and government-imposed movement restrictions led to sharp drops in transactional activity between the second quarters of 2020 and 2021, resulting in price depressions and fluctuating supply volumes.
A more optimistic outlook for Malaysia’s economy in 2022 is also supported by this development. In addition, the government’s shift from a “pandemic” to an “endemic” classification of COVID-19 indicates that long-term policies are being implemented to deal with the crisis.
As a result, economic activity regulations will be more uniform, businesses will have more clarity, and consumer confidence in a financial security will improve.
The Malaysian housing market has been cooling down for the past two years due to massive oversupply following a decade-long price boom. Unsold apartments in Malaysia’s major cities total YR 18.48 billion (US$ 4.41 billion), a result of overbuilding of high-end properties during the recent boom. However, the government’s efforts to boost the market are (partly) bearing fruit.
The government has introduced a number of measures to control speculation and discourage developers from overbuilding in an attempt to combat this problem. Stamp duty was raised from 3% to 4% on properties valued at more than MYR 1 million (US$ 238,578) in Malaysia. In addition, the government increased the real property gains tax (RPGT) on properties sold after six years by an additional 5%. In order to deal with the effects of the pandemic, however, these measures have been temporarily eased.
House prices are still below Asian crisis levels
Despite the recent housing boom, Malaysian house prices are still below pre-Asian Crisis 1997 levels in inflation-adjusted terms.
Kuala Lumpur’s house prices have outperformed the rest of the country since the Asian crisis. The Greater Kuala Lumpur Plan, which included “The MRT Project,” helped to revive the Property marketing in Malaysia after the downturn of 2008-2009. House prices in Kuala Lumpur increased by nearly 122 percent between 2005 and 2015. (73 percent inflation-adjusted).
National price increases, on the other hand, have been more muted. Malaysian house prices increased by 96.1 percent between 2005 and 2015. (52.4 percent inflation-adjusted).
Between 2016 and 2018, the average annual increase in house prices in the United States was 5.2 percent (3.3 percent inflation-adjusted). However, as the government’s market cooling measures took effect in 2019, the housing market began to lose steam. House prices in the United States increased by only 1.8 percent in 2019 and fell by 0.9 percent in 2020.
Tighter lending and anti-speculation measures
Over the last decade, the government has enacted a number of anti-speculation laws. Bank Negara Malaysia (BNM) tightened lending guidelines in 2012, requiring mortgage eligibility to be determined by net income. BNM reduced the maximum home loan term to 35 years in July 2013, shortened the maximum personal loan term to 10 years, and prohibited the use of pre-approved financing products.
Some other anti-speculation measures:
The capital gains tax is increasing. On January 1, 2014, the Real Property Gains Tax (RPGT) on properties sold within three years of purchase increased from 15% to 30%. Gains on properties sold after four to five years are now taxed at 20% and 15%, respectively. Citizens would not be subject to RPGT on properties sold after six years, but businesses would be subject to a 5% tax.
For non-citizens, the RPGT on properties sold within five years of purchase is 30 percent, while the RPGT on properties sold within six years or more is 5 percent.
Temporary relief measures introduced
As part of its June 2020 Penjana recovery plan, the government implemented temporary relief measures to support the real estate sector in order to mitigate the impact of the pandemic.
Last year, the Home Ownership Campaign was relaunched, with stamp duty exemptions available for purchase agreements completed between June 1, 2020, and May 31, 2021. It was recently extended until December 31, 2021;
the 70 percent loan-to-value (LTV) requirement for third mortgages was lifted for a year until May 2021; and sales of up to three residential properties are exempt from real Property marketing in Malaysia gains tax from June 1, 2020 to December 31, 2021.
Selected borrowers affected by the pandemic were also offered a six-month loan payment moratorium extension and repayment flexibility.
Demand is rising again
These temporary measures appear to be working, as demand has been improving recently.
The number and value of residential property transactions increased by 11.1 percent and 26.1 percent, respectively, in the first quarter of 2021.
Sarawak had the highest y-o-y increase in total residential property transactions marketing in Q1 2021, at 39.8 percent, followed by Perlis (35.6 percent), Pulau Pinang (33.1 percent), and WP. Kuala Lumpur (26.5%), Kelantan (24.3%), Selangor (16.7%), Melaka (16.2%), and Negeri Sembilan (16.2%) are the top five cities in Malaysia (13.3 percent ).
More modest increases were recorded in Sabah (9.9%), WP Labuan (9.3%), Perak (6.3%), Terengganu (4%), Kedah (2.8%) and Pahang (0.5%).
Only WP Putrajaya and Johor experienced y-o-y sales declines of 24.3 percent and 10.9 percent, respectively, in Q1 2021.
Selangor dominated the market in Q1 2021, accounting for about 25% of all residential Property marketing in Malaysia, followed by Johor (11.4%) and Perak (10.9%).
According to JPPH, residential Property marketing in Malaysia fell 8.6% year over year to 191,354 units in 2018, compared to a 6% increase in 2019 despite the pandemic. Last year, transactions totaled MYR 65.87 billion (US$15.71 billion), down 9% from the previous year.
Residential construction activity rising again, but supply overhang remains large
Residential construction is also getting better. According to JPPH, housing starts for landed and high-rise residential buildings increased 40.9 percent year over year to 28,398 units in Q1 2021, following an 18.6 percent drop in 2020. Completions increased 15.9% year over year to 15,324 units in Q1 2021, after falling 12.2% the previous year.
Despite this, there is still a significant amount of unsold housing stock. Residential overhang totaled 27,468 units worth MYR 18.48 billion (US$4.41 billion) in the first quarter of 2021. Terraced houses accounted for 25.7 percent of the total overhang, while high-rise units accounted for 58.1 percent. With 16,537 units, Johor had the largest overhang, followed by Kuala Lumpur (4,477 units) and Selangor (3,477 units) (1,776 units).
The government’s decision to freeze approvals for high-end property developments has slowed residential construction in Malaysia over the last three years. The restriction applies to properties worth more than MYR 1 million (US$ 238,550) as of November 2017.
As a result, from 2018 to 2020, annual starts fell by an average of 15%, while completions fell by 6.4 percent.
Meanwhile, to meet the high demand for affordable housing, the government continues to promote the development of affordable homes, particularly those priced below MYR300,000.
“There is a gap in this sector between the 48 percent demand for affordable housing and the supply, which only meets 28% of that demand.” This is an area that requires immediate attention, according to Johari.
The rate of growth, however, is slowing. Between 2016 and 2020, the value of housing loans increased by an annual average of 8%, compared to 13.1% in 2007-2015 and 19.3 percent in 2000-2006.
Kuala Lumpur’s rental yields low; rents falling
Apartment and condominium gross rental yields in Kuala Lumpur typically range from a little more than 2% to 5%. According to Global Property Guide research, bungalows have lower rental yields of around 2.5 percent. The average gross returns on 120 sq.m. condominiums are 4.5 percent, but rental yields for this size were over 8% four years ago.
According to Envicion Studio 2020 Portal Demand Analytics, rental yields for terrace houses were 3.3 percent in H2 2020, down slightly from 3.4 percent in H1 2020.
Due to low demand for rental properties, rents are falling. In H2 2020, the median asking rent for condominiums fell by 5.3 percent from the previous period to MYR 1,800 Over the same time period, the median asking rent for serviced residences fell 5.9% to MYR 1,600 (US$382).