Malaysia’s housing market looking strong

A sustained economic recovery in Malaysia coupled with political stability last year contributed to the strongest house price increases since 2000. The national house price index rose 6.2% y-o-y to Q3 2010, after annual increases of 6.2% and 5.7% in Q2 and Q1, respectively.

In Kuala Lumpur, the house price index surged by 9.9% y-o-y to Q3 2010, with a rise of 3.6% during the latest quarter, whilst nationwide increases ranged from 10 to 1.3%.

Nationally, terraced houses, semi-detached houses and high-rise prices rose an average of 6.1%, whereas detached houses rose 3.7% and the national average price was US$64,158. Prices in the capital, Kuala Lumpur, averaged almost double that at US$141, 453.

Overall, the last year saw healthy business for the property market, with transaction volumes rising 12.2% and the value of transactions rose 35%, on the back of 7% economic growth after two years of budget deficit and a more stable political situation following Abdullah Badawi standing down as Prime Minister.

Economic stimulus packages also included a tax relief for homebuyers on housing loans interest relief up to MYR10,000 (US$2,900) a year, for 3 years and deferred housing loan repayments for 1 year for those retrenched, providing added support to the real estate market, despite low barriers to homeownership. Support that was reflected in 11% growth in outstanding housing loans, equivalent to 24.7% of GDP (US$51.6 billion).

Part of the keen growth in the real estate sector has certainly been encouraged also by the governments’ retreat from a plan to re-impose 5% capital gains tax, first abolished in 2007 and then touted again in 2009. However, opposition from the real estate sector saw the government back down and restricted the 5% real property gains tax to properties sold within five years of acquisition.

Against this, foreign buyers have faced a stricter market with the price floor below which foreign buyers can buy is hiked to MYR500,000 (US$145,383), twice the previous level, effective as of January last year and an over-supply of high-end condominiums has sparked concern.

Despite an improved take-up rate, there were 66,328 units unsold at end-2010, though this was lower than 2004’s peak level of 83,888 units unsold.

Contrary to this, the secondary market for landed residential properties is strong as a result of the government’s attempt to make housing more affordable and the construction of more than 100,000 low cost housing unit.

House prices in Malaysia, despite this resurgent growth, are still below their pre-Asian Crisis levels and its rental market remains small. Only 6% of the housing stock is in the private rental sector. About 85% of the total stock is owner-occupied, while government-provided housing accounts for 7% of the housing stock.