Is it better to rent or buy a house in Malaysia?

If you are torn between buying a home in 2024 or to continue renting before getting onto the property ladder, then this article is for you.

You have heard this a million times before – buying your own house or residential property is one of your biggest life milestones. The idea of investing a huge sum into such an asset seems daunting and it is something that needs to be given a lot of thought. As the world recovers from the pandemic, Malaysia’s GDP is expected to grow at 4% to 5% YoY in 2024.

Not to mention the costs involved when buying a house is not for the faint-hearted – on top of your mortgage payments, you have stamp duty, legal fees, valuation fees, mortgage insurance (MRTA) and real estate agent fees to think about!

But then again, just like most Malaysian millennials out there, you are probably tired of having a sizeable chunk of your salary go towards monthly rental payments. And wouldn’t it be nice to own the roof over your head, which could give you good capital appreciation down the road?

However, the answer to the buy or rent debate isn’t so cut and dried. It ultimately depends on an individual’s circumstances and future plans. Here we answer 6 questions you might have and by the end of this guide, you should have a clearer picture of which route to take.

What are the median prices of homes across Malaysia?

Your buying decision obviously depends on the price of the property and whether you have enough money to buy a home in your preferred location. Before we dive into the critical aspects of home ownership, let’s take a look at the latest median prices for residential properties across Malaysia.

According to the National Property Information Centre (NAPIC), the median price of a house in Malaysia for Q3 2023 was RM350,174 – an increase from the RM330,000 median price in 2022. The same goes for Housing Index in Q3 2023 which sees a marginal annual growth of 0.1% at 212.6 points (RM458,751 per unit). This is an increase from the index point of Q3 2022 which was 212.4. However, it is a decrease from the 216.80 Index in the second quarter of 2023.

All states experienced moderate growth between 0.1% and 4.0%, except for Selangor (-1.6%), Pahang (-0.7%), Kelantan (-1.4%) and Sarawak (-1.2%). Where you purchase a home also matters as median house price varies between states. Surprisingly, Johor, Negeri Sembilan,and Perak top the list as the most expensive location to own a home. Terengganu and Sabah have the lowest median house prices with an index of 187.1 and 192.6.

Residential real estate in the price range of RM300,000 and below dominated the market activity, recording 35,948 (52.4%) transactions. This is followed by the price of RM300,001 to RM500,000 by 16,947 (24.7%) transactions and RM500,001 and above by 15,666 (22.9 %) transactions. In terms of the type of property, demand remains focused on terrace type residences which dominate over 40% of the total number of transactions.

Bear in mind that median prices depend on actual transactions and are not based on advertised selling prices. Transactions here refer to the transfer of both primary and sub-sale homes within the review period at all stages of construction – completed, under construction and planned.

Why did median housing prices increase in 2023?

As mentioned earlier, the median house price in Malaysia saw an increase Y0Y in Q3 2023. This can be attributed to Malaysia’s economic growth in 2023. According to the Central Bank (Bank Negara Malaysia – BNM), Malaysia’s economy grew by 3.3% in the third quarter of 2023.

Growth was anchored by resilient domestic demand. Household spending remained supported by continued growth in employment and wages. Meanwhile, investment activity was underpinned by the progress of multi-year projects and capacity expansion by firms. Exports remained soft amid prolonged weakness in external demand. This, however, was partially offset by the recovery in inbound tourism. On the supply side, the services, construction and agriculture sectors remained supportive of growth.

According to PropertyGuru Malaysia Property Market Report Q3 2023, the elevated asking prices are, in turn, coaxing homeowners to list their properties. Subsequently, the Sale Supply Index has reached a peak unseen since 2018.

The residential real estate market is expected to remain optimistic and cautious even though the performance of market activity shows a recovery. The prospects of the workforce in the construction sector, the increase in loan costs, the increase in the price of building materials and inflationary pressure are seen to have an indirect effect on the supply of residential properties.

Is buying cheaper than renting a house?

To provide a rough illustration of the cost comparison between buying and renting, we will be using a Buy vs Rent calculator.

Let’s say you have decided to buy an RM620,000 condominium unit in Casa Tropicana, Selangor. To commit, you will have to pay:

• A 10% down payment upfront
• A 4% closing cost (legal fees, stamp duty and valuation fees)
• A 3% home insurance cost
• Monthly instalments of roughly RM2,745. This is calculated based on the following terms: a 30-year loan tenure at 4.25% interest and a 10% down payment. *Note: The interest rates of current mortgage products vary between 4.0-4.5%, hence we will be taking the average which is 4.25%.
• A RM250/month for maintenance costs

Meanwhile, if you rent the same unit, it will cost you RM2,500 per month. To commit, you will have to fork out: A deposit of RM6,250 (equivalent to 2.5 monthly rent).

This Buy Vs Rent Calculator assumes the following:

• Property prices appreciate at 2% YoY.
• Rental prices for similar properties appreciate at 2% YoY.
• A 4.0% investment rate (the percentage of annual earnings from any money you save from purchasing by investing them in FD, stocks, bonds, etc)
• An inflation rate of 2%

After 7 years, your total cost of homeownership (down payment, mortgage, taxes, etc.) for a RM620,000 home in Malaysia would be RM957,125. Renting leaves you with RM698,836 in your pocket (including the money you didn’t spend on a down payment).

Property Gain: After 7 years, if you buy, your home will have RM226,578 in equity (available to you when you sell). However, if you instead rent and invest your down payment and the other money you save, at a 4% return rate it will earn around RM25,987 in 7 years.

Looking at your gross costs, equity and investment potential, it’s better for you to buy than rent if you plan to live in your home more than 7 years.

Do note that this is just one example. Property selling and rental prices could differ greatly by housing types, property age and across different locations. You should play around with the Buy vs Rent calculator to gauge if it makes sense to purchase your own piece of real estate now.

How to determine if you can afford to buy a house or not?

The best way to gauge your readiness to purchase is to calculate your Debt Service Ratio (DSR), the ratio of a person’s total debt to their monthly income. It determines whether you will be able to secure a mortgage in the first place.

Debt-to-service ratio Formula = Debt/Net Income X 100

A good DSR proves to the banks that you can afford to pay the monthly instalments throughout the loan tenure. Generally, banks will not accept a DSR which exceeds 70%.

Do take note that banks will refer to your Central Credit Reference Information System (CCRIS) report too when reviewing your home loan application. Your CCRIS, which is available online displays all of your total credits, interest charges and other outstanding charges for all loans that you have taken out with any banks in Malaysia – these include personal loans, credit card loans and hire purchase loans.

Delay in repaying any of your debt obligations will show up in your report, where it is labelled as “1”. Lending guidelines differ across banks, but most will require mainly zeroes as it shows that you are a good paymaster.

Do you have enough cash for the closing costs?

Buying a house requires making a number of payments at different phases. First, you have to fork out 10% of your purchase price as a deposit to lock in the property. Then, you have to pay the monthly loan instalments for the next 30 or 35 years.

Apart from that, there are also a number of fees you need to cover known as the closing costs. These amount to 3-5% of your real estate value and comprise expenses such as legal fees, agent fees, MRTA, valuation fees and stamp duties. Check out the 2023 Stamp duty, legal fees and 5 other costs when buying a house in Malaysia.

Besides that, first-time home buyers who are keen on capital growth will have to keep property tax in mind. If they sell their property within the first five years, the profit is subject to the Real Property Gains Tax (RPGT). The good news is, the Malaysian government had earlier announced that starting 1 January 2022, all Malaysian citizens and permanent residents will be exempted from RPGT when they sell their property after the fifth year.

If you determine that your DSR is within a healthy range and you have enough savings for a 10% down payment and the closing costs, you can then proceed to the next step.  However, if you are already struggling with your financial obligations, it is best to put your home ownership dreams on hold and continue renting. In the meantime, you can work on improving your finances first using the 50-20-30 rule, a simple budgeting guide that is suitable for all income brackets.

READ: Quit Rent (Cukai Tanah), Parcel Rent & Assessment Rates in Malaysia

Are there any financial incentives if you buy a home now?

Aspiring home buyers could leverage on several government measures to secure their own property. This is further boosted by Budget 2024, which saw a further shift from blanket subsidies to a more targeted approach to benefit the lower-income groups.

Here are financial incentives that consumers and home buyers can look forward to:

1. Housing Credit Guarantee Scheme (HCGC, or Skim Jaminan Kredit Perumahan)

HCGC was introduced to help those without proof of a fixed monthly income get housing financing. It involves the purchase of low and medium-cost houses, whether under construction or completed, existing houses from sellers or auction houses. The applicant’s average monthly income must be at least RM1,000. and the maximum financing is set at RM300,000.

In Budget 2024, the funding HCGS was increased to RM10 million, benefiting up to 40,000 borrowers.

READ: How to apply for the Housing Credit Guarantee Scheme and what are the eligibility requirements

2. Residensi Wilayah (RUMAWIP)

The RUMAWIP scheme is specially designed for first-time buyers who fall under the low-to-middle-income groups. This program offers a variety of properties in the Federal Territories of Kuala Lumpur, Putrajaya and Labuan at affordable prices.

Do note that there are several FAKE websites using the RUMAWIP logo and brand, including the the ones using the following URLs:

• https://www.rumawip.com.my/
• https://www.rumawip.com/
• https://www.residensiwilayahpersekutuan.com/
• https://rumawip.org/

3. Flat rate stamp duty on property transfers for non-citizens

A flat rate of 4% stamp duty on the Memorandum of Transfer (MOT) will be implemented for non-citizens and foreign-owned companies, with the exemption of permanent residents. This applies to instruments of transfer executed from 1 January 2024. This move will help control land or property prices for locals.

What is stamp duty? It is the tax placed on property documents during the sale or transfer of the property. The tax includes:

• Stamp duty on the Sale and Purchase Agreements (SPA) of the property – this costs RM10.
• Stamp duty on the instruments of transfer – Memorandum of Transfer (MOT) or Deed of Assignment (DOA). The new flat rate of 4% for non-citizens and foreign-owned companies will be implemented for 2024.
• Stamp duty on loan agreement – a flat rate of 0.5% of the total loan.

For example, if the property purchased is RM1 million, the difference is RM16,000. To some, this might only have a small impact. Foreigners usually purchase properties in the Klang Valley and Penang, where the threshold is RM1 million and above.

Price Tier	Normal Tier (For Malaysian Citizens)	New flat Rate of 4% (For Non-Citizens and Foreign-Owned Companies)	Difference
First RM100,000	1% (RM1,000)	4% (RM4,000)	RM3,000
Next RM400,000 (RM101,000 – RM500,000)	2% (RM8,000)	4% (RM16,000)	RM8,000
RM500,001 to RM1,000,000	3% (RM15,000)	4% (RM20,000)	RM5,000
Thereafter (>RM1 million)	4%	4%

The government is also proposing a nominal stamp duty fee of RM10 to replace the previous variable rate for real estate transfer documents among family members.

Currently, the stamp duty for transfer of properties between parents and children, and grandparents and grandchildren, is fully exempted for the first RM1 million and given a 50% discount (subject to an valorem duty rate) for the balance above RM1 million.

This change will apply to cases where beneficiaries are relinquishing their rights to eligible beneficiaries in accordance with a will, Faraid, or the Distribution Act 1958.

Some opine that the flat rate of 4% stamp duty may discourage home ownership and Malaysia My Second Home (MM2H) to those who might be looking to migrate to Malaysia in the future. On MM2H, the government indicated an easing of the current conditions for MM2H applications to attract more tourists and foreign investors into Malaysia.

4. Affordable housing projects

RM2.47 billion will be allocated for public housing projects (PPRs) in 2024. Various allocations for the B40 will assist more Malaysians to own homes. These allocations include:

• RM546mil to continue development of 36 Program Perumahan Rakyat (PPR), including a new project in Kluang, Johor. 15 PPRs are anticipated to be completed in the coming year, benefiting 5,100 potential residents.
• RM358mil towards the development of 3,500 residential units under 14 Program Rumah Mesra Rakyat.

ALSO READ: 15 Government Housing Schemes Available For B40 And M40 Groups

What are your next steps?

Buying a home involves a lot of research and personal assessments from your end, but this step-by-step guide could help you navigate the process smoothly from the get-go. Also, make sure to utilise our home loan eligibility tool, LoanCare to find out if you will be able to secure a mortgage from up to 17 banks across Malaysia for the property you have been eyeing.

It won’t hurt to talk to a trusted real estate agent to help you think through the decision of purchasing a home now instead of later. Should you think renting is a better option for you then check out 10 things you should know before you rent a house in Malaysia.