Malaysia’s property market is expected to improve gradually in 2026, given the favourable supply-demand dynamics.
MALAYSIA’s property sector for the second quarter of financial year 2025 (2Q25) demonstrated healthy growth momentum (1% quarter-on-quarter (q-o-q), and 4% year-on-year (y-o-y)), despite elevated tariff-induced economic slowdown concerns during the quarter.
This is in line with 2Q25 gross domestic product growth of 4.4% y-o-y, thanks to robust domestic demand.
Notably, the industrial properties segment was the standout performer, registering a robust 18% y-o-y increase in 2Q25 transactions as record-high approved investments in 2021 to 2024 continue to be implemented.
We believe the overall property market will continue to exhibit resilient underlying strength in the second half of 2025, in tandem with stable household spending and investment activities.
This resilience is expected to be further supported by the recently unveiled Budget 2026, which continues to promote housing affordability through targeted financial and tax incentives.
Specifically, the government will double the financing guarantee allocation for first-time homebuyers to RM20bil from RM10bil to enable more gig workers and self-employed individuals to own homes and extend the full exemption of stamp duty on first home below RM500,000 until 2027.
Furthermore, the proposed increase in financial assistance in 2026 under Sumbangan Tunai Rahmah and Sumbangan Asas Rumah programmes to RM15bil from RM13bil as well as the 7% salary increase for civil servants under Phase 2 of the Public Service Remuneration System are expected to contribute to a healthy housing demand in 2026.
Robust labour market, accommodative policy to lift sentiment
Certain quarters are concerned about the supply overhang as 2Q25 residential overhang came in at 26,911 units (14% q-o-q, 19% y-o-y), marking the third successive quarterly increase since the lows in 3Q24.
We are not unduly worried as this largely reflects the aggressive project launches over the past three years to capture the long-overdue sector recovery since 2022.
We believe this nascent uptick is not a major risk at this juncture, considering the sustained expansion in the labour market and income growth.
Meanwhile, the first Bank Negara Malaysia’s interest rate cut of 25 basis points in July 2025 to 2.75% in five years will serve as a catalyst to boost the property market sentiment, coupled with the government’s concerted efforts to alleviate cost of living for the people.
More importantly, Malaysia’s employment market has been growing steadily, and has far exceeded the pre-pandemic employment level, thanks to the growing economy.
It is even more encouraging that labour participation has hit a record high of 70.9% in August 2025 while unemployment has dipped to a 10-year low of 3%, which could partly explain the steady and resilient domestic demand.
This positive development is expected to continue given our favourable demography, which will further underpin the resilience of Malaysia’s domestic demand.
Tailwinds from Malaysia’s sustained investment upcycle
Thanks to the concerted efforts by the federal government to boost economic growth under the Madani Economy framework, 2Q25 capital expenditure continued its growth momentum at 12.1% y-o-y (1Q25: 9.7%)
It reflects the positive impact arising from record-high approved investments in 2021 to 2024 and various government-led strategic developments under national blueprints.
This sustained uptrend has continued unabated in 2025 as approved investments rose 19% y-o-y to RM190bil.
Indeed, Malaysia’s progressive national policies in digital economy, renewable energy, and value-added industrialisation have driven record-high investments, positioning the country as a fast-rising hub for regional cloud infrastructure and a prime destination for supply chain diversification.
Meanwhile, the 19% US tariff on Malaysian exports puts the country on par with the rates imposed on other competing Asean peers – this is likely to help preserve Malaysia’s competitive advantages in the US trade.
We believe the bright prospects of an investment upcycle in Malaysia will continue to provide further tailwinds in the near term.
The booming investment activities have translated into a robust outlook for the industrial property sector, which has experienced a strong wave of price appreciation in recent years.
Developers with large exposure in industrial developments such as Sime Darby Property Bhd
and Eco World Development Group Bhd have benefitted from the government’s strategic pivot to push for high value-added industrialisation.
The successful rollout of the Johor-Singapore Special Economic Zone, underpinned by the firm commitments from the top leadership of both Malaysia and Singapore, has further reinforced Malaysia’s status as a leading destination for rising Asean foreign direct investment inflows.
For instance, Malaysia has become a hotspot for data centres, thanks to its proximity to Singapore, spillover effects of the US-China trade war as well as comparatively cheaper land, water and power.
Johor has been the largest beneficiary of this data centre boom, with several large industrial parks such as Nusajaya Tech Park, Sedenak Tech Park and YTL Green Data Centre Park capturing billions of investments from global leading players including Microsoft, Google, ByteDance and GDS Holdings.
The burgeoning data centre ecosystem will in turn create more demand for residential property as more high-value employment opportunities are created.
In addition, the emphasis by the government to push for the green economy agenda with its progressive policies such as the Corporate Renewable Energy Supply Scheme and Large-Scale Solar for renewable energy has also indirectly contributed to Malaysia’s property sector.
The rising adoption of solar energy in Malaysia, driven by its high irradiance levels, has significantly enhanced the value of agricultural land that may otherwise remain idle.
Therefore, it is no surprise that certain large plantation companies have also ventured into the renewable energy sector.
Malaysia’s property market is expected to improve gradually in 2026, given the favourable supply-demand dynamics.
While it is true that low affordability could be a concern for homebuyers, we believe that Malaysia’s property market is heading towards a sustained recovery given our healthy economic growth momentum, lower interest rates and strong growth in the labour force.
Quah He Wei, is an economist with AllianceDBS Research Sdn Bhd (ADBS), while Wong Ming Tek is executive director of ADBS. The views expressed here are the writers’ own.
