Malaysia’s Property Prices: Why So High?

Property prices in Malaysia have remained consistently high, despite modest demand as the COVID-19 pandemic led buyers to tread with caution. This has resulted in a large number of unsold homes – the country had 35,000 completed but unsold properties in the first quarter of 2022, according to its Housing and Local Government Ministry. Less demand, more supply, but prices remain high – why?

More Expensive to Build

One key reason is the escalating cost of construction materials. According to Datuk NK Tong, president of The Real Estate and Housing Developers’ Association Malaysia (REHDA), the rising prices of raw materials such as steel, cement and timber have had a big impact on construction expenses. As developers face growing bills, these costs are inevitably passed on to buyers, leading to higher property prices.

“As many as 63 per cent of developers choose to increase the sale price of real estate as the most crucial step to overcome the increase in the cost of building materials”, Datuk Tong told business news outlet The Malaysian Reserve.

At the recent Southeast Asia Property Investment Show (SEAPIS) organised by PropertyGuru in March 2023, Ms. Amy Wong, Executive Director (Research & Consultancy) at real estate consultancy Knight Frank Malaysia, cited rising inflation as another reason for high property prices.

With inflation going up, property developers face higher construction costs, which leave buyers with higher property prices.

This is coupled with a rising interest rate environment. During the pandemic in 2020, the overnight policy rate (OPR) in Malaysia dropped to a record low of 1.75 per cent. OPR is an overnight interest rate set by Bank Negara Malaysia, the country’s central bank, that determines the rate of interest for financial institutions that lend each other money overnight.

But Bank Negara Malaysia raised the OPR by 25 basis points to 3.00 per cent, up from 2.75 per cent, on May 3, 2023. As borrowing gets more expensive, construction costs and property prices will inevitably increase in tandem.

More Connected, More Pricey

Besides rising construction costs, development in infrastructure, namely transportation networks, has also led properties to appreciate in value. As Malaysia continues to expand its Mass Rapid Transit (MRT) network, more and more residential areas will be connected to key areas such as business districts and educational institutions. Improved accessibility and connectivity raise the appeal and value of properties located near these new MRT stations.

One such example is the Putrajaya line in Klang Valley. By linking a number of neighbourhoods, the second MRT line in the region will provide connectivity to more homes, shopping centres and workplaces. 

“Klang Valley is definitely growing in terms of accessibility. And these lines are creating addresses that are worth investing in, that make investment sense”, Ms Wong said at SEAPIS.

Although modest demand usually results in a decline in property prices, Malaysia’s real estate market continues to defy expectations. Both property developers and buyers would do well to keep up with industry trends to ensure that they make the wisest property decisions.

Mr. Winston Lee, Director of Special Projects at PropertyGuru, urged investors to keep abreast of the market dynamics in Malaysia’s real estate sector. “By staying informed about the factors influencing property prices, developers and buyers can navigate the market effectively and make informed decisions that align with their goals,” he said. ‍‍

Join us at PropertyGuru’s Invest Asia Property Show from 29 to 30 July. You will get a deep dive into Malaysia’s property market, identify growth opportunities and connect with industry insiders through roundtable discussions, exhibitions and presentations. Sign up at PropertyGuru for Business now.

‍