Hitting the right timing for Malaysia’s property and construction markets

Recent changes to Malaysia’s Sales and Service Tax framework has affected the domestic property and construction sectors, resulting in some pessimism. Still, the government remains optimistic that both markets will thrive. 

In December, the Malaysian parliament postponed the discussion for the Urban Renewal Act 2025 once again. Despite the controversy surrounding the law, we see the necessity of redeveloping the Malaysian property sector. Currently, there are 534 potential redevelopments; Kuala Lumpur alone, a city that attracts expatriates and foreign investors, has 139 sites needing work estimated to be worth MYR 355.3 billion (USD 87.65 billion).

Apart from the property sector, Malaysia’s construction segment is reportedly experiencing a surge in activity. According to the Department of Statistics Malaysia, the sector posted strong growth of 10.6 per cent, or MYR 45.4 billion (USD 11.20 billion), with 22,546 projects lined up during the third quarter of 2025. In comparison, the previous quarter of the same year tallied an increase of MYR 43.9 billion (USD 10.83 billion) allocated to 21,897 projects.

Both sectors are necessary, but the real question is how they could attract foreign investors and bring them into the fold.

Current housing market

It is easy to understand the uneasiness around Malaysia’s housing market. Between January-June 2025, there were more than 12,000 overhang or unsold homes in hotspots such as Klang Valley, Johor, and Penang cumulatively valued at MYR 10.1 billion (USD 2.5 billion). The supply imbalance between condominiums and luxury houses, combined with the affordability of home prices, creates a potentially frothy housing market.

Graph 1 shows that units priced below MYR 400,000 (USD 98,600) saw more sales by volume, totalling MYR 15.9 billion (USD 3.9 billion). Meanwhile, properties valued at MYR 700,000 (USD 172,500) and higher sold worth a total of MYR 20.75 billion (USD 5.11 billion). Malaysian developers would see this as an indicator that luxury homes are a huge market, but could create problems if the government does not take action to overcome the excess supply in that segment.

At the same time, the Malaysian central bank cut interest rates from 3 per cent to 2.75 per cent in July last year after a two-year hold. With this, the local property market is expected to regain its momentum during the second half of 2025. Surprisingly, the National Property Information Centre expected that the third quarter would see house prices decrease from the previous quarter’s MYR 501,722 (USD 123,973) average price to MYR 494,384 (USD 122,160) per unit. With lower interest rates and reduced house prices, we see that this would boost the momentum of Malaysia’s residential property sector.

Building up construction

As Malaysia’s housing market stabilises, one should also look at its construction industry. The industry is expected to grow by 9.6 per cent thanks to the support from ongoing private investment in luxury and large-scale projects, as well as government initiatives focused on affordable housing. Based on Malaysia’s 2026 national budget, the government will play a crucial role in infrastructure development.

Apart from the allocation of MYR 81 billion (USD 20 billion) for development projects, we also see the construction industry gaining momentum from foreign direct investments (FDI). These FDI inflows are expected to generate MYR 15 billion (USD 3.7 billion) in the real estate sector, which include projects like industrial parks, logistic hubs, and housing developments.

Based on Graph 2, July 2024 saw trade in construction stocks exceed the volume of property shares traded on Bursa Malaysia, the country’s main stock market index. The first half of that year saw a surge in public infrastructure and private sector projects, with over 7,000 projects worth MYR 88.92 billion (USD 21.97 billion) in awarded contracts. We also see the property stock market equally as valuable. Property developers can expect to gain from housing projects supported by the government as well as from first-time homebuyers. There are also potential gains to be realised from foreign buyers looking to purchase a house given the government’s policy, which include special visas for foreigners owning property in Malaysia.

Policies supporting local and foreign buyers

To complement low-cost housing projects, the Malaysian government launched a Housing Credit Guarantee Scheme that allots MYR 20 billion (USD 4.94 billion) for first-time buyers, including those without fixed incomes. This encourages more citizens to buy their own homes. At the same time, developers can sell property to more low- and middle-income households, thus meeting the demand for housing.

Meanwhile, the long-term residency program for foreigners called Malaysia My Second Home (MM2H) has received 30,303 applications since 2015, with 22,282 approved for foreign nationals. Interestingly, about half of the authorised buyers hail from China at 10,830 approved applications. A continuing campaign from a shop at the heart of Kuala Lumpur has so far attracted MYR 730 million (USD 180 million) in foreign funds investing in properties within Malaysia.

Additionally, with the MM2H program and the Johor-Singapore Special Economic Zone underway, we expect that more foreigners will be keen on purchasing a home in the country. This will be supported by tax incentives for specific sectors granted by the Malaysian Investment Development Authority, which includes a 5 per cent tax break for new manufacturing investments within the ecozone.

With all these plans in place, we anticipate that Malaysia’s property and construction sector will gain significant attention from both local and foreign investors this 2026. Market confidence could strengthen further as the government provides continuing support to the housing market and roll out more construction projects, supported by lower borrowing costs. As such, we see these policies creating a win-win situation that will help the domestic economy thrive through the spending power of more foreign investors.

This original article has been produced in-house for Lundgreen’s Investor Insights by on-the-ground contributors of the region. The insight provided is informed with accurate data from reliable sources and has gone through various processes to ensure that the information upholds the integrity and values of the Lundgreen’s brand.