The invisible M40

Too wealthy for government subsidised housing, yet priced out of the soaring luxury market. Referred to as the invisible middle class, Malaysia’s middle 40% (M40) households form the backbone of the workforce, yet their housing realities are increasingly strained.

Within this group, the lower-middle tiers are commonly referred to as M1 and M2. They are also the most financially vulnerable.

During the pandemic, around 20% of M40 households experienced income declines that pushed many into the bottom 40% (B40) category.

Although the M40 makes up 40% of households, it holds only about 38.2% of national income, compared to 45.1% for the top 20% (T20), according to the Statistics Department (DOSM).

In urban centres such as Kuala Lumpur and Selangor, this pressure is amplified.

A large share of income is absorbed by housing, transport and childcare, leaving limited room for savings or upward mobility. They are, in many ways, stuck in the middle.

Too qualified for subsidised schemes like Rumawip and Perumahan Rakyat 1Malaysia or PR1MA, yet unable to sustain RM700,000-plus urban housing.

When the maths no longer works

For the average household, the mathematics of property no longer adds up. It is becoming increasingly misaligned with income reality.

DOSM reports that the median monthly income for the lower M40 is around RM5,250. Based on the median multiple rule, affordable housing for this group should ideally fall between RM300,000 and RM450,000.

But the market is telling a vastly different story.

The Property Market Report 2025 by the National Property Information Centre (Napic) shows the national average house price has risen to RM502,922. In major urban centres, the gap is even wider still. Kuala Lumpur has shot past RM810,000 while Selangor averages RM567,505.

Buyers are worried because this mismatch is leading to a structural imbalance that will resonate years down the line.

Napic data shows a 31.6% rise in unsold completed units as of late 2025. While 52% of transactions are still going strong below RM300,000, new supply is still skewing toward higher-priced, high-density developments with high ownership costs.

The tag-along costs

Aside from considering the purchase price, maintenance costs have been on the rise as well. In an increasingly competitive market, developers will differentiate their projects from others through lifestyle amenities such as rooftop infinity pools, sky gyms and multiple other types of recreational facilities.

While these features appeal to premium buyers, they present a very different reality for the lower-middle M40.

Monthly maintenance fees today can range between RM300 and RM500 per month, though this can easily rise to over RM700 in luxury developments.

This quickly becomes a tipping point between mortgage approval and rejection. For many households, affordability is not only about loan eligibility but about sustaining long-term ownership.

So, can it be said that this demographic prioritises practicality over luxury?

Likely yes, because they seek features such as natural ventilation, efficient layouts and proximity to public transport, which are often more valuable than additional parking bays or centralised air-conditioning systems that increase energy consumption and monthly expenses.

A market split in two directions

The recent trends suggest a K-shaped recovery in Malaysia’s property market.

Demand for properties above RM1mil has grown by 6.5%, a growth driven by high-net-worth buyers and investors.

In contrast, the mass-market segment remains more or less the same. It is a clear reflection of constrained purchasing power among middle-income households.

As a result, many buyers are venturing out from city centres in search of affordability.

Locations such as Semenyih, Nilai and Rawang offer good entry points in the RM300,000 and RM400,000 range.

However, these savings tend to get offset by longer commutes, higher fuel costs and increased vehicle maintenance.

Fortunately, several measures have been introduced to ease access to housing finance.

Budget 2026 expanded the Housing Credit Guarantee Scheme, allocating up to RM10bil to support first-time buyers and gig workers.

Developers have also done their part in introducing step-up financing models that reduce any early repayment burdens. These are all done in anticipation of income growth.

However, financing is still a problem.

Recent findings from the Real Estate and Housing Developers’ Association Malaysia (Rehda) show that 72% of developers report financing-related difficulties among buyers, with end-financing loan rejections reaching as high as 31% to 45% for properties priced between RM500,000 and RM700,000.

In some cases, rejection rates approach nearly half of all applications within this segment.

Market signals

Other states are benefitting from the situation.

The rise in unsold residential units has sprouted opportunities in states such as Perak. There, developers have been offering incentives to clear inventory.

But in the Klang Valley, pricing rigidity remains and is demoralising a significant percentage of the population.

At the same time, capital is shifting elsewhere.

Industrial assets have recorded value growth of around 21.3%, drawing investor attention away from residential segments.

Commercial property trends also reflect stabilisation with occupancy rates near 78%.

Shop-offices are also emerging as preferred assets in Kuala Lumpur and Selangor.

The property market is different from how it was years ago and a big portion of the population is struggling to keep up.

Malaysia’s housing market is no longer grappling with oversupply issues alone.

Today, it is plagued more by the growing gap between construction and access. Homes are being built, units are being listed and prices are being recorded as usual.

But for a large segment of the M40, ownership is increasingly filtered through financing barriers, recurring costs and structural affordability constraints.

In that sense, the question is no longer whether housing exists for the middle class but whether the middle class still exists within the current housing system.