Malaysia's Property Prices Outpace Income Growth, Widening Affordability Gap

Property prices in Malaysia are climbing at an uneven pace, creating a significant affordability gap between housing costs and household incomes, even as the economy remains fundamentally strong. Economic analysts point to a robust outlook for 2026, supported by low unemployment (around 3.2%), controlled inflation (approximately 2.5%), and strong private and foreign direct investment, particularly in manufacturing and data centers. These factors bolster demand for properties priced between RM500,000 and RM1.5 million, mainly among the upper M40 and T20 income groups in major urban areas.

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However, these strong fundamentals are not the same for all segments. For affordable housing below RM500,000, the demand fundamentals are weaker because the purchasing power of the lower B40 and M40 is increasingly eroded by the rising cost of living.

However, this economic strength does not translate uniformly across all market segments. Demand for affordable housing priced below RM500,000 is faltering. The purchasing power of lower-income M40 and B40 households is diminishing due to the rising cost of living. Consequently, current house price increases are driven by selective demand and escalating construction costs, rather than broad market appetite.

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So, the current house price increase is not supported by widespread demand, but by selective demand and high construction costs.

The primary challenge in the property market is the faster growth of house prices compared to household income. Data indicates median house prices are rising by 4.5% to 6% annually in 2024 and 2025, while median household income is only growing by 3% to 3.8%. In cities like Kuala Lumpur, Selangor, and Penang, this disparity is more pronounced, with house prices doubling the rate of salary growth. This has pushed the house price-to-income ratio in major cities beyond 5.0 times, a level generally considered unaffordable (above 3.0 times).

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In Kuala Lumpur, Selangor, and Penang, the gap is even larger, with house prices increasing about twice the rate of salary growth.

This gap has widened significantly over the past three years. While average private sector salary increases are around 4% in 2024-2025, this growth is uneven. High-growth sectors like digital, finance, and engineering see salaries rise by 6% to 8%, whereas traditional services, retail, and manufacturing sectors experience only 2% to 3% increases. Simultaneously, construction costs, including materials, labor, and compliance, continue to drive up property prices. A graduate earning RM3,500 today would need 35 to 40 years of income to afford a median house of RM600,000, compared to about 25 years a decade ago. This affordability crisis forces many to postpone marriage or opt for renting.

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This gap causes many to postpone marriage or choose to rent.