Malaysia’s Housing Overhang Shifts to Mid-Range Segments in 2025: Key Causes and Insights 

A recent article from The Edge, 29 Sep 2025 highlights a significant shift in Malaysia’s housing overhang—from high-end properties to mid-range and “affordable” condominiums—marking a key difference from previous trends.

Key Point from The Edge:

• Malaysia’s housing overhang has shifted from high-end to mid-range and affordable condos priced between RM200,000 and RM600,000, according to Napic’s 1Q2025 report. Total unsold completed units stood at 23,515, down from 24,208 in 1Q2024 and 26,872 in 1Q2023, but the composition reveals a growing mismatch in supply and demand.
• Nationally, the RM300,001–RM400,000 segment dominated in 2024 (3,039 units) and 1Q2025 (2,715 units), with RM200,001–RM300,000 also rising (2,336 units). State trends vary:
  • Kuala Lumpur: Overhang moved to RM200,001–RM300,000 (880 units out of 3,668).
  • Selangor: Shifted to RM500,001–RM600,000 (292 units), with luxury lingering (132 units out of 2,068).
  • Johor: Mid-range (RM500,001–RM600,000) dropped to 425 units out of 3,034, but new supply hinders absorption.
  • Penang: Spans brackets, with RM200,001–RM300,000 piling up (470 units out of 2,729).
• The trend highlights saturated markets in supposedly demand-friendly price ranges, as shown in national charts depicting a dip in 2024 followed by a slight rise in 1H2025.

Chart 1: Residential overhang 2025. Excerpted from NAPIC

Key Causes and Insights: Shift to Mid Range & Affordable Segments

Macro Economic Factors

Broader economic pressures constrain buyer purchasing power and confidence, amplifying overhang despite modest GDP growth projections of 4.5–5.5% for 2025. Key drivers include:

Uneven Economic Recovery: GDP and real income growth positively correlate with house prices short-term, but unemployment (3.3%) and job insecurity in services/manufacturing sectors reduce first-time buyer confidence. Localized urban land scarcity inflates prices, while exchange rate volatility (RM4.20–RM4.50/USD) raises imported material costs by 10–15%, slowing completions and adding to overhang.

Affordability Crisis: Median house prices reached ~5x median annual household income (RM5,000–RM6,000/month for M40 earners), exceeding the 3x benchmark, due to wage stagnation amid 2–3% inflation. This squeezes middle-income (B40/M40) buyers targeting mid-range condos, with rising living costs (e.g., food, fuel) diverting funds from home loans.

Tighter Mortgage Regulations: Although the lending rates remains attractive at 3.5–4% (OPR at 3% prior to revision in Sep 2025), the tighter mortgage regulations (e.g., debt-service ratios capped at 60%) led to 64% of developers reporting buyer loan rejections. This dampens demand for RM200,000–RM600,000 units, where monthly repayments (RM800–RM2,000) strain budgets.

Micro Economics Factor

At the project and buyer level, oversupply and behavioral barriers create “sticky” inventory, with condos/apartments comprising 70% of overhang (vs. terraced houses). Developers launched 47% more units in 9M2024, but take-up fell to 34%, flooding mid-range segments.

• Supply-Demand Mismatch: Urban developers overbuilt high-rise condos (e.g., small/studio units in KL with high psf ~RM800–RM1,000) assuming “affordability,” but demand favors landed homes or better amenities. Johor’s pipeline (heavy new supply) and Penang’s cross-bracket saturation slow absorption, with 65% of Q1 2025 launches below RM500,000 yet unsold.

Geopolitical Factors

Direct impacts on residential overhang are limited, as Malaysia’s sector is domestically driven. However, indirect effects via global tensions subtly influence sentiment:

• Global Uncertainties: US-China trade frictions and tariffs (escalating in 2025) restrict capital inflows, delaying real estate recovery by 1–2 quarters and raising import costs (e.g., steel up 5–10%). South China Sea disputes add minor investor caution, but benefit industrial zones (e.g., Johor) via supply chain shifts, indirectly pressuring residential via uneven job growth.
• Minimal Residential Tie-In: Unlike commercial property, mid-range condos see negligible foreign buyer pullback (e.g., from China/Singapore), with exemptions like Johor’s stamp duty relief (extended to end-2025) mitigating risks. Overall, geopolitics amplifies macro caution rather than causing overhang.

In summary, macro affordability and cost pressures form the core, exacerbated by micro oversupply and stigmas, with geopolitics as a peripheral drag. Policy interventions (e.g., BTS incentives, urban renewal) could ease overhang by 10–15% in 2H2025 if demand rebounds.

Other factor: Tighten liquidity in financial market

I understand it may be unconventional to use changes in broad money supply as an analytical tool, but it does have an impact on overall financial market liquidity. When liquidity tightens, as seen recently, lenders tend to be more selective in approving qualified borrowers. The result is a lower loan approval rate.

To address the this, the central bank has taken prompt action, including lowering the SRR in May 2025 and revising the OPR down to 2.75% in September 2025.

Slowing broad money supply growth (M3 from ~7% in 2014 to 0.6% in Jul 2025) indicates reduced liquidity and tighter credit conditions in Malaysia’s economy. This raises borrowing costs (e.g., via higher interest rates) and curbs loan approvals, eroding purchasing power for middle-income buyers targeting RM200k–RM600k condos. Consequently, demand weakens in these “affordable” segments, exacerbating supply-demand mismatches and shifting overhang from high-end to mid-range units, as seen in Napic’s 1Q2025 data (e.g., dominance in RM300k–RM400k bracket) despite modest overall inventory decline.

What Next:

Let’s check out the incoming supply.

Chart 2: Malaysia Residential Starts & Incoming Supply. Excerpted from NAPIC.

End of analysis.

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