Malaysia's house prices continue to rise, albeit at a slower pace
Lalaine C. Delmendo | May 18, 2019
During 2018, the nationwide house price index rose by 3.31% (3.14% inflation-adjusted, down from 6.13% in 2017, 6.97% in 2016, and 6.47% in 2017, according to the Valuation and Property Services Department (JPPH)). On a quarterly basis, the house price index rose by 2.45% (1.94% inflation-adjusted) in Q4 2018.
Malaysia's average house price stood at MYR 416,993 (US$ 100,685) in 2018.
By property type:
- Terraced house average prices rose by 6.4% (5.4% inflation-adjusted) to MYR 378,474 (US$ 91,384) during 2018.
- High-rise residential properties' average price fell by 1.2% y-o-y (-2.1% inflation-adjusted) to MYR 338,698 (US$ 81,780).
- Detached house average prices were down by 1.8% y-o-y (-2.7% inflation-adjusted) to MYR 658,668 (US$ 159,039).
- Semi-detached house average prices increased 2% y-o-y (1% inflation-adjusted) to MYR 657,239 (US$ 158,694).
Kuala Lumpur has Malaysia's most expensive housing, with an average price of MYR 786,800 (US$ 189,662), followed by Selangor, at MYR 479,894 (US$ 115,681); Sabah, at MYR 452,965 (US$ 109,189); and Sarawak, at MYR 440,515 (US$ 106,188).
The cheapest housing in Malaysia can be found in Kelantan, Perlis and Melaka, with average prices of just less than MYR 200,000 (US$ 48,211).
Demand is stable. In 2018, the number and value of residential property transactions rose by just 1.4% and 0.4%, respectively.
From January 1, 2018, stamp duty was increased from 3% to 4% on properties worth above MYR 1 million (US$ 241,245).
Although the housing market remains weak, some experts expect the market to improve gradually, supported by Malaysia's healthy economy, liberal policies, and better political conditions since the 2018 general elections.
“In 2019, we expect to see more motivated sellers and discerning buyers to be present in the residential market,” said Kelvin Yip of Knight Frank Malaysia. “Malaysia's residential properties will continue to be attractive in the eyes of foreign buyers as a result of our liberal policies, reasonable valuations and coupled with no extra stamp duties,” Yip added.
The Malaysian economy expanded by 4.7% in 2018, lower than the 5.9% growth in 2017, according to Bank Negara Malaysia (BNM). Projected GDP growth is 4.7% this year and 4.8% in 2020, according to the International Monetary Fund (IMF).
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.
Malaysian economy slows amidst political uncertaintyThe Malaysian economy expanded by 4.7% in 2018, notably lower than the 5.9% growth in 2017, according to Bank Negara Malaysia (BNM), amidst the ongoing political uncertainty surrounding the 1MDB corruption scandal.
- Services sector grew by 6.8%, following a 6.2% growth in 2017
- Manufacturing sector grew by 5%, down from 6% growth in 2017
- Construction expanded by 4.2%, a slowdown from the prior year’s 6.7% growth
- Mining and quarrying contracted by 1.5%, from a marginal growth of 1% in 2017
- Agriculture contracted 0.4%, from a growth of 7.2% in 2017
“In 2018, the country saw a moderation in growth after an exceptionally strong performance in 2017,” said Bank Negara governor Datuk Nor Shamsiah Mohd Yunus. “The economy was impacted by one-off factors, namely, supply-side shocks and post-election policy uncertainty.”
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 has been strong since, registering an annual average growth rate of 5.2% from 2011 to 2017.
Malaysia’s economy is projected to expand by 4.7% this year, mainly driven by strong private consumption, according to the World Bank. “Household spending will be buoyed by stable labour market conditions and income support measures such as the Cost of Living Aid (Bantuan Sara Hidup),” said World Bank’s lead economist for Malaysia Richard Record.
In March 2019, Malaysia’s inflation was 0.2%, following two months of negative inflation (-0.7% in January and -0.4% in February), according to the Department of Statistics Malaysia. Malaysia’s inflation in 2018 was 1%, sharply down from 3.8% in 2017.
The BNM’s Monetary Policy Committee (MPC) kept its Overnight Policy Rate (OPR) at 3.25% in March 2019 – unchanged since raising it by 25 basis points in January 2018.
Unemployment was at 3.3% in February 2019, unchanged since September 2018, based on the figures from the Department of Statistics Malaysia.
After continuously falling for a decade, Malaysia’s budget deficit widened again to 3.7% of GDP in 2018, from 3% of GDP in 2017, according to the Ministry of Finance. The shortfall is projected to fall again to 3.4% of GDP this year and to 3% of GDP in 2020, based on World Bank projections.
Government debt stood at 51.8% of GDP in 2018, up from 50.7% of GDP in 2017 but down from 52.7% of GDP in 2016.
The Malaysian ringgit (MYR) was one of Asia’s worst-performing currencies this year after it fell by as much as 5.5% in a year to reach a monthly average exchange rate of MYR 4.1139 = USD 1 in April 2019, as caution swept through Asia following the IMF’s downward revision of the global growth forecast.
The domestic currency was also weighed down by political uncertainty surrounding the 1MDB scandal and Malaysia’s dispute with the European Union over palm oil.
Former Prime Minister Najib Tun Razak is currently facing trial over his role in the multi-billion dollar 1MDB corruption scandal that triggered international outcry and brought down his UMNO-led government during last year’s general elections. The United Malays National Organisation (UMNO) is the political party that governed Malaysia since its independence.
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 Najib on July 2, 2015. In July 2016, the US Department of Justice filed a lawsuit alleging that more than US$3.5 billion had been plundered (it later raised the figure to more than US$4.5 billion). Several countries, including the United States and Singapore, have launched corruption investigations into 1MDB.
Najib denied the allegations. While in office, the Malaysian authorities cleared him of all wrongdoings. But the case was reopened after UMNO’s surprise defeat at last year’s general elections. At least 42 charges are currently filed against him for alleged corruption, money laundering and abuse of power.
Malaysia’s newly elected prime minister, Mahathir Mohamad, capitalized on public mistrust of Najib to win the general elections last May 2018. A former UMNO leader and mentor to Najib, Mahathir vowed to bring his former protégé to justice.