Property Market Recovery and Buyer Confidence Awaiting on Economic Stability

The Malaysian property market will continue to face challenges as it moves towards recovery in 2023, according to PropertyGuru Malaysia’s Property Market Outlook Report 2023. This comes on the back of continuous economic and political instability in the country, resulting in an overall downcast in consumer sentiment. 

While the property market saw a steady improvement in 2022 with reopened international borders and higher productivity levels, findings from the Property Market Outlook 2023 report foresees a challenging year ahead due to vast uncertainties in public policy, federal incentives, and economic prospects.

“Due to these uncertainties, it is challenging to project an accurate outlook on how the market will fare in the new year. While we’ve seen gradual movement in recovery with overall transaction prices in H1 2022 recording a higher trend compared to the previous year, we are also seeing cautious behaviour as Malaysians await possible revisions of the Budget 2023,” said Sheldon Fernandez, Country Manager, Malaysia (PropertyGuru.com.my and iProperty.com.my).

Adapting from the pandemic to the endemic amid a bleak economic outlook

While the property market expected a steady recovery when standard operating procedures were loosed on 1 April 2022, the Russian-Ukranian Market also created pressure on the rate of inflation and resulted in the hike of interest rates. The impact of this event cascaded into the manufacturing sector in Malaysia as critical raw materials were short in supply. 

The PropertyGuru Malaysia Property Price Index, which tracks the movement of prices via property listings on PropertyGuru, saw a 3.3% increase from 2021. Against rising median prices, the demand trend however tracked weaker numbers due to the expiry of the Home Ownership Campaign (HOC) in the first quarter. A slow but steady pace continued, as reflected by a 7.9% QoQ increase in the Sale Demand Index in the second quarter. 

“The decline in the Demand Index is likely due to potential homebuyers continuing a cautious approach against inflation and higher borrowing costs. It is uncertain at this point in time when we will likely see an improvement, as Malaysia is not only on its journey to economic recovery but were also in the midst of huge changes in the political landscape with the 15th General Election as well. Respondents in our Consumer Sentiment Study also highlighted that they expect interest and inflation rates to continue increasing in 2023. Ultimately, this shows that Malaysians are awaiting more stability as changes in government will affect policymaking as well as expectations for revised or new homeownership aids”, said Sheldon.  

Affordability issues loomed potential homebuyers continuously throughout 2022 

Amid economic and political instability, the budgets of prospective purchasers continued to be scrimped, on the back of demand declining correspondingly as well. According to the Consumer Sentiment Study (CSS) H2 2022, PropertyGuru Malaysia’s affordability rating dropped 7 points from 62 in H1 2022 to 56 in H2 2022. More than half of the individuals surveyed in the same study highlighted that they understood that they are not qualified for government affordable housing schemes, and are not able to purchase property without financial assistance.

PropertyGuru Malaysia opined that with housing affordability as a key concern among millennials, home seekers would likely look to government assistance to transition into home ownership. However, it noted that while the government’s latest measures and potential budget may help relieve some of the cost pressures young home buyers face, there are still segments of society that are missing out on assistance.

“It is important to note that Malaysians continued to worry about affordability despite having several government schemes such as i-MILIKI and the Malaysia Family Home Ownership Programme to support home ownership in 2022. This really highlights the instability that homebuyers are currently facing and the significant downtrend in purchasing confidence as a long-term result of the pandemic. We are also looking forward to what the new government will offer should the earlier announced Budget 2023 be revised”, Sheldon continued.

For those who have the means to purchase a home, PropertyGuru Malaysia also recommends that buyers should give themselves building buffer when committing to a home purchase, following the potential interest rate hikes and uncertain economic climate ahead.  On top of this, buyers would need to manage their credit scores to secure loans or re-establishing a good credit history, as banks will be cautious for purchases not to result in non-performing loans. For those looking to sell, PropertyGuru Malaysia highlighted that finding a replacement home may be another challenge, too, as asking prices are likely to be higher at this point in time. 

Property market trends in Malaysia for 2023 

Moving forward, PropertyGuru foresees several trends that will impact the Malaysian property sector in 2023. Among them include: 

  1. Environmental concerns will affect homebuyers’ preferences: More Malaysians are now concerned following the flood disaster as the late 2021 and early 2022 floods resulted in losses and damage of up to RM6.1 billion. In the CSS H2 2022, 92% of the respondents highlighted home flooding as their main concern, while 83% were concerned about landslides. With buyers’ looking at locations on higher ground, properties in flood-prone districts may see drastic drops in prices. Future homeowners will also likely look at paying higher premiums for insurance against the effects of climate change and natural disasters. 
  1. The property market will be spurred by activity from foreign investors: The government has introduced the “residence by investment” visa, officially named Premium Visa Programme (PViP), which is aimed to draw more foreign investments to strengthen the economy and spur job creation in the country. According to the government, 20,000 applications were received within the first week even though the application process began on 1 October 2022. 
  1. Worsened economic outlook may impact sales volume: Despite improved productivity in the Malaysian economy and expected growth of 4% to 5% in 2023, according to Budget 2023, the prolonged Russian-Ukranian conflict and China’s economic slowdown sets buyers in a less than ideal situation. Despite the expected slower growths, asking prices are likely to be sticky, and the price gap between buyers and sellers is expected to widen. 
  1. Digitalisation of economy can aid housing growth: Malaysia’s digital economy is a main economic pillar, contributing to 22.6% of the country’s gross domestic product and is predicted to increase to 25.5% by 2025. With the government’s initiatives to support digitalisation, adopting technology and innovation, Malaysian organisations and individuals will be able to benefit from higher levels of productivity as well as job and wealth creation, subsequently supporting the long-term growth of demand and housing market prices.

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