Extended mortgage tenures and higher loan-to-value (LTV) ratios have made high-priced homes appear more manageable in terms of monthly instalments. However, these financing structures are also contributing to rising overall house prices and weakening long-term affordability, according to industry researchers and market analysts.

At the Property Market Outlook 2026 summit organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS), Khazanah Research Institute (KRI) director of research Suraya Ismail stressed that Malaysia’s housing affordability challenges require deeper policy refinement rather than further credit expansion.

She noted that mortgage tenures extending beyond 35 years, including intergenerational loans, inflate housing prices by embedding higher financing costs into property values. Shortening loan durations, she argued, would encourage more disciplined pricing and support healthier, more sustainable market growth.

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RM300,000 ‘Affordable’ Benchmark Misaligned Outside Greater KL

Despite various policy interventions, Malaysia’s housing affordability remains categorised as “seriously unaffordable” at the national level. While certain states have performed better than others, Suraya cautioned that a one-size-fits-all benchmark may be distorting supply outcomes.

In particular, she questioned whether the RM300,000 affordable housing threshold remains appropriate outside Greater Kuala Lumpur, where income levels, employment structures, and housing typologies vary significantly. She added that affordability must be assessed alongside Malaysia’s relatively high homeownership rate and the prevalence of informal housing solutions.

Current guidelines by the Ministry of Housing and Local Government (KPKT) measure affordability only at broad urban and non-urban levels. Suraya proposed that affordability metrics be refined further to the city and township level, allowing policymakers to better capture real market conditions — similar to how planners already differentiate sub-markets such as commercial property in KL, office space in Bukit Jalil, and satellite townships across Selangor.

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New Indicator Proposed to Track Truly Affordable Supply

To address supply imbalances, Suraya introduced the concept of a down-market penetration ratio, which measures how much of the lowest-priced, unsubsidised housing produced by private developers is genuinely affordable relative to median household income.

This indicator would help identify whether private sector housing supply is disproportionately skewed toward higher-income households, leaving lower-income groups underserved without government support.

Current data shows a stark imbalance:

• Only 10% of new housing is affordable to the bottom 47% of households earning below RM6,000 per month

• Households earning under RM3,000 — about 15% of the population — have access to just 3% of new housing supply

While roughly half of new launches are priced below RM300,000, most fall within the RM200,000 to RM300,000 range — still out of reach for many lower-income households. This affordability gap is particularly acute in major urban centres such as Kuala Lumpur, where housing and rental costs far exceed what minimum-wage earners can sustain.

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Rental Market No Longer a Safety Net

Rising rents have further eroded housing options for lower-income households. In Kuala Lumpur, even the lowest available rental units require a minimum monthly income of around RM3,000, effectively excluding minimum-wage earners from formal rental housing.

This raises concerns about whether renting can continue to serve as a viable alternative to homeownership, especially in employment hubs near industrial property in Subang area, logistics corridors, and office clusters where rental demand is strongest.

Suraya also called for the introduction of a Rental Tenancy Act to regulate the market, protect tenants from unsafe or substandard living conditions, and improve overall housing quality. She highlighted the need to curb exploitative practices such as overcrowded or sub-divided units that compromise safety and dignity.

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Cashback Loans and High Leverage Distort Market Prices

Echoing these concerns, Infomina Geolytik Sdn Bhd director Joe Thor highlighted how Malaysia’s property market is increasingly driven by credit structures rather than genuine purchasing power.

Practices such as pricing arbitrage, where properties are financed at inflated values above their actual purchase price, allow buyers to receive “cashbacks” after completion. While these rebates may be used for legal fees, renovations, or down payments, Thor warned that banks do not knowingly approve such arrangements, as the cashback portion effectively functions as an unsecured loan.

The widespread use of extended tenures, high leverage, and incentive-driven pricing has created a two-speed market:

• Inflated headline prices

• Longer resale periods

• Increased discounting at auctions

This trend has also contributed to a rise in foreclosures, pushing up professional indemnity insurance costs for valuers and, in turn, increasing valuation fees across the industry.

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Call for Greater Transparency in Property Valuations

Thor emphasised the need for stronger governance and transparency in valuation practices. He argued that valuers should be appointed based on professionalism and analytical rigour — not on their ability to “match” or maximise values.

Key performance benchmarks for valuers should include:

• Accuracy and consistency

• Turnaround time

• Response quality

• Adequate market sampling to avoid selective comparisons

These principles are increasingly relevant not only for residential assets, but also for industrial land in Selangor, factories in Puchong, and investment-grade office buildings in KL, where valuation accuracy directly affects financing risk.

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Data-Driven Tools Help Counter Artificial Overvaluation

Market distortions caused by incentive-driven pricing have already been observed in Kuala Lumpur’s condominium segment. In response, data platforms such as EdgeProp EPIQ are being adopted by banks to reduce reliance on single-point valuations.

Instead of focusing solely on reported transaction prices, EPIQ analyses property values through multiple dimensions, including:

• Neighbourhood-level price benchmarks

• Auction market data as a proxy for true floor value

• New launch pricing versus secondary market reality

• Supply pipelines and absorption rates

By triangulating these factors, lenders can identify anomalies, detect inflated valuations, and adjust loan exposure accordingly — a risk management approach that is increasingly applicable across asset classes, including commercial property in KL and high-demand industrial zones throughout Selangor.

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Structural Reforms Needed for Sustainable Growth

Industry observers broadly agree that addressing Malaysia’s housing challenges requires a coordinated approach — combining financing reform, better-targeted supply, stronger rental regulation, and data-driven valuation standards.

Without these adjustments, affordability pressures will continue to intensify, even as headline prices rise. For urban markets anchored by employment centres — whether office hubs in Bukit Jalil, industrial estates in Subang and Puchong, or logistics corridors across Selangor — long-term sustainability will depend on aligning prices with real incomes, not just extended credit.