Malaysia’s property market slowing sharply
Last Updated: January 04, 2016
During the year to end-Q3 2015, the nationwide house price index rose by 5.43% (2.74% inflation-adjusted), down from an annual rise of 7.88% the previous year and the lowest increase since Q3 2009, according to the Valuation and Property Services Department (JPPH). On a quarterly basis, the index increased 0.8% (0.2% inflation-adjusted) in Q3 2015.
Malaysia’s average house price stood at MYR312,050 (US$72,519) in Q3 2015, up by 5.41% (2.72% inflation-adjusted) from a year earlier.
By property type:
- Terraced house average prices rose by 5.4% (2.7% inflation-adjusted) to MYR278,223 (US$64,658) during the year to Q3 2015
- High-rise residential properties' average price rose by 6% (3.3% inflation-adjusted) y-o-y to MYR296,826 (US$68,981)
- Detached house average prices rose by 4.1% (1.4% inflation-adjusted) y-o-y to MYR524,260 (US$121,835)
- Semi-detached house average prices increased 6% (3.3% inflation-adjusted) y-o-y to MYR469,823 (US$109,185)
Negeri Sembilan registered the highest y-o-y house price increase, at 7.3% (4.6% inflation-adjusted) during the year to end-Q3 2015, followed by Perlis (7.2%), Sarawak (6.7%), and Perak (6.6%).
Other areas with strong annual price rises included Selangor (6.2%), Kedah (6.1%), Kuala Lumpur (5.3%), Sabah (5.3%), and Terengganu (5.2%). Modest house price increases were seen in Pulau Pinang (3.5%), Melaka (3.3%), Pahang (3%), and Johor (3%). Only Kelantan saw a house price decline of 0.2% (-2.8% inflation-adjusted) during the year to end-Q3 2015.
Kuala Lumpur has the most expensive housing in Malaysia, with an average price of MYR718,755 (US$167,035) in Q3 2015. In contrast, Perlis had the cheapest, at an average house price of MYR156,324 (US$36,329).
Malaysia’s property market is expected to remain weak in the coming months, with house price rises slowing further next year.
Malaysia’s economic growth is expected to slow to 4.7% this year and to 4.5% in 2016, due to tighter fiscal conditions, according to the World Bank.
The ongoing political uncertainty is undermining confidence. PM Najib Razak has been engulfed by a scandal alleging that he had spent US$700 million from an Arab donor to ensure the victory of the United Malay National Organization (UMNO) in the 2013 elections. Worse, the government's seeming lack of interest in probing the matter has seriously eroded trust in government institutions.
Malaysia: gross rental yields have moderated
Condominium prices in Kuala Lumpur are reasonable at between US$1,500 to US$3,000 per square metre (sq. m.)
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 almost completely stable for the past 15 years.
Given that Malaysia is a large place and relatively thinly populated, there are obvious limits to capital appreciation prospects (arguably, except in ‘dormitory town’ areas for neighbouring Singapore).
Therefore, the prime attraction of property ownership in Kuala Lumpur is income. Gross rental yields have fallen somewhat over the past year. Rents have not kept pace as nominal prices have risen. Yet the decline has been gentle, almost invisible. The 120 sq. m. condominium category remains the best-paying investment, with gross returns of 7%, but last year, our researchers found that rental yields averaged over 8% for this size.
Gross rental yields on condominiums generally range from 5% to 7%. Bungalows have lower yields, typically just over 4%.
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: No real property gains tax (RPGT) is levied on disposals of properties held for more than five years for 2013. 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.
Economic slowdownThe Malaysian economy grew by a robust 6% in 2014, up from growth of 4.7% in 2013, 5.5% in 2012, and 5.3% in 2011, according to the International Monetary Fund (IMF). Economic growth is expected to slow to 4.7% this year and to 4.5% in 2016, due to tighter fiscal conditions, according to the World Bank.
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%.
In recent months, inflation has been rising after the government enforced the 6% goods and services tax (GST) in April 2015 and raised the excise tax on cigarettes in November 2015. The nationwide inflation rate stood at 2.6% in November 2015, according to the Department of Statistics Malaysia.
For 2016, the country’s inflation is expected to increase to 3.5%, driven mainly by a series of price hikes, the lagged effect of GST, and imported inflation.
BNM kept its Overnight Policy Rate (OPR) at 3.25% in September 2015, after raising it by 25 basis points in July 2014, despite recent higher inflation. The central bank is expected to keep the OPR unchanged next year, following the Fed’s move to increase the fed funds rate to 0.25%-0.5%.
The ringgit (MYR) remains weak. In 2015 the domestic currency shed almost 23% of its value to USD1 = MYR4.2925, its worst yearly decline since the Asian financial crisis year of 1997. The ringgit is expected to depreciate further in 2016 to reach between MYR4.49 and MYR5.00 to the US dollar.
“The weak global crude oil price and uncertainties domestically are ongoing challenges for the ringgit," said AmResearch.
Unemployment was 3.1% in October 2015, up from 2.7% in the same period last year, according to the Department of Statistics Malaysia.
There were about 2.1 million registered immigrants in the country, of which over one million are likely undocumented. To boost the economy, the World Bank has suggested that a 10% net increase in low-skilled foreign labour might boost the country’s real GDP growth by up to 1.1%.
In the May 5, 2013 elections in Malaysia, the ruling Barisan Nasional (BN) coalition, dominated by Prime Minister Najib Razak’s party, United Malays National Organisation (UMNO), took over 60% of parliamentary seats, despite getting only 47.38% of the popular vote. The opposition Pakatan Rakyat (PR) coalition led by Anwar Ibrahim failed to win majority even though it won 50.87% of the popular vote.
Anwar accused PM Razak and the Election Commission (EC) of electoral fraud. Recent investigations revealed that Razak spent US$700 million from an Arab donor to ensure that UMNO would remain in power during the 2013 elections.
Critics continue to be disappointed by the slow development of the investigations.