The latest on Housing price data: Official statistics from the National Property Information Center (JPPH), the housing index decreased in Q2 of 2018 to 1.7% from 4.1% in Q1. The housing index has averaged 4.1% from 1997 to 2018, reaching an all time high of 44.5% in Q1 2000 and a record low of-39.2% in Q3 2018.
The median house price in Malaysia rose slightly in Q3 of 2018 at RM 293,000 and the average price is marginally lower at RM 383,648.
Kuala Lumpur is the most expensive state to purchase property within Malaysia, with prices widely varying according to type of property but costing an average of RM772,980. Other areas with high prices are Putrajaya (RM 756,394), Selangor (RM496,593) Johor (RM 382,820) and Penang (RM 438,397).
The lowest median prices are in Kelantan (RM 208,994), Kedah (RM214,936) Perak (RM239,439) and Pehang (RM261,599).
The most expensive transaction in Malaysia in the same period was RM6.87million, for a detached house in Kuala Lumpur.
These statistics were all based on the averages of sales in each area and according to JPPH, were drawn from residential transactions submitted to the Valuation and Property Service Department for stamp duty valuation services. These were transactions that took place on completed properties, those under construction and purchases in planned construction.
Contributing factors
Malaysia currently has an oversupply of houses and a lack of affordable homes. Unsold units, which have been available for nine months after completion, rose to 29,227 in the first half of 2018, and an added 10,000 still under completion at the time.
The Malaysian government has asked developers to boost sales by offering a 10% discount; this should bring in S$7.4 billion and boost the stagnating market. These transactions will be exempt from stamp duty and a quarter of the properties on offer will be priced at RM300,000 or less.
Developers have not been providing the housing market with the types of homes in demand. They have been flooding the market with luxury units, when the average Malaysian household, according to the Central Bank of Malaysia, cannot afford more than RM 282,000.
Rental yields
Gross rental yields in Malaysia are between 2.3% and 5.4% and condominium selling prices in Kuala Lumpur are reasonable at $1,800 to $2,000 per m2. Gross returns have fallen from 8% for a 120m2 condominium two years ago to 4.5% and bungalow yields have also fallen to about 2.5%.
As a stable country Malaysia also has a stable market with fluctuations in home prices. This ensures that the country neither sees boom nor collapses in the housing market. Malaysia is a large country that is not densely populated, limiting capital appreciation. Dormitory towns near Singapore see better appreciation and property buyers are primarily attracted to Kuala Lumpur for income.
The falling yields have made Malaysia less attractive for investors.
Taxes and costs
All income, including rental income, is taxed at a flat rate of 26% for non residents and no deductions are made for expenses.
Residents are only taxed on their Malaysian sourced income at progressive rates, from2% to 26%.
Capital gains tax is applied at different rates for citizens, companies and non- citizens. Non-residents and non citizens will be taxed at 5% for property held for more than five years.
Malaysia has no inheritance or gift tax.
Buying costs in Malaysia are very low and will be around 3.4% to 6.75% of the property value. This includes the estate agent’s commission of 2.75% on an amount of up to RM500, 000 and a further 2% thereafter. These are the lowest buying costs in Asia.
The law in Malaysia is pro-landlord, but a slow and inefficient court system renders it pro-tenant. There is no rent control (abolished in 2000) and the law allows for freely negotiated rentals, increases can be appealed by the tenant if felt to be too high.
Tenancy agreements are usually annual, but the landlord has the right to ask the tenant to vacate the premises without compensation. The landlord has to give three month notice to vacate before the expiration of the contract. Rent adjustments must be mutually agreed and recovering unpaid rents is difficult.
Conclusion
The Malaysian economy has enjoyed robust growth since 2010 and the IMF has projected a Real GDP of 4.7% for 2019. Malaysia’s exports have remained strong, as global demand for electronics continues. Tighter global financial conditions could pose risks for its economy, as can uncertainties in some of the advanced economies.
Malaysia’s inflation rate has been falling over the last three years and it is at 2.3%. Unemployment rates are also low at 3.3%.
The Malaysian ringgit has become one of the best performing currencies in the region, after years of being the worst performer. These gains have been attributed by analysts to the improved balance of payments and stronger exports.
The government of Malaysia has pledged to take affordability into account for each region before approving future residential projects. The new Residential Rental Act is in the drafting process, and will protect the rights of tenants and landlords. The increase in stamp duty for property from 3% to 4% was introduced for properties of overt RM 1 million in 2018 and new regulations are been introduced to lure young, first time buyers.
The banking sector has taken a prudent stance where house loans are concerned and have not exposed themselves to risks.
Foreigners wanting to invest in Malaysia are reassured of finding a foreigner friendly country with few buying regulations. The minimum investment requirements for foreigners is RM 1 million and foreigners can apply for a renewable 10 year visa.
Savills predicts an improved property market for 2019. Even though the new leader of Malaysia, Mahathir Mohamad, has a more negative view of foreigners buying property, more political stability has been created.
Strong economic growth and stronger consumer confidence create optimism and the housing market will rebound.
