Higher loans, longer tenures contributing to housing unaffordability—experts

KUALA LUMPUR (Jan 30): Extended mortgage tenures and higher loan-to-value ratios have made expensive homes more “affordable” in terms of monthly payments, but have contributed to higher overall house prices.

Speaking at the Property Market Outlook 2026 flagship summit organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS) on Thursday here, Khazanah Research Institute director of research Suraya Ismail highlighted the need for refinements in policy to make housing generally more accessible.

Mortgages exceeding 35 years, including intergenerational loans, contribute to rising house prices due to financing costs. Shorter mortgage periods, she argues, would help maintain affordability and support sustainable price growth.

RM300k bracket is not affordable outside Greater KL

While some states have fared better than others, Suraya noted that, at the national level, housing affordability continues to fall within the “seriously unaffordable” category, despite government measures to address the issue.

She stressed the importance of reviewing whether the current RM300,000 price threshold for affordable housing may be detrimental to markets outside the Greater Kuala Lumpur conurbation. Housing affordability, she said, must be considered in light of both the formality of housing, and the country’s high homeownership rates.

Existing guidelines by the Ministry of Housing and Local Government (KPKT) measure affordability only at urban and non-urban levels. Suraya suggests expanding metrics to the city and town level to better reflect actual housing market dynamics.

She proposed a new indicator to monitor the supply of low-priced, unsubsidised housing. This ratio measures the proportion of the lowest-priced housing units produced by the private sector relative to median household income. It would help track whether new housing primarily serves high-income households while lower-income households remain underserved.   

Suraya highlighted that the Malaysian housing market is heavily skewed towards higher-income households. Only 10% of new housing is considered affordable to the bottom 47% of households earning below RM6,000 per month. Households earning below RM3,000 per month—approximately 15% of the population—have access to merely 3% of new housing units.

Although about half of new housing launches are priced below RM300,000, a large proportion falls between RM200,000 and RM300,000, placing them out of reach for most lower-income households. The supply of genuinely affordable housing remains limited, particularly in urban areas such as KL, where rental prices far exceed what minimum-wage earners can afford.

She pointed out that private developers often target the aspirational segment of the market, producing housing beyond the affordability thresholds of lower-income households. The down-market penetration ratio would provide insight into whether the private sector can supply homes to lower-income households without government subsidies.

Renting rates too high for low-income earners

Rising rental costs also pose a barrier to affordable housing. In KL, the cheapest available rents exceed what minimum-wage earners can afford, with individuals needing a monthly income of at least RM3,000 to access the lowest-priced units. This raises questions about whether renting can serve as a viable alternative to homeownership for lower-income households.

Additionally, Suraya said a rental tenancy act should be introduced as a regulatory framework to protect tenants against substandard rental units, such as “coffin rooms”, and strengthen overall housing quality.

Suraya concluded that a combination of policy refinements, better-targeted housing supply, and regulatory frameworks for both ownership and rental markets is necessary to address Malaysia’s housing affordability challenges.  

‘Cashback’ loans cause artificially-inflated prices

Digital property financing company Infomina Geolytik Sdn Bhd director Joe Thor echoed this sentiment, citing that the Malaysian property market is increasingly influenced by credit extension and longer loan tenures rather than traditional purchasing power, highlighting that these financial mechanisms are reshaping both pricing structures, and buyer behaviour.

On top of that, Thor explained that practices such as pricing arbitrage—where a property is purchased below current market value but financed at a higher amount—allow buyers to receive a “cashback” or rebate after the purchase price is deducted. Although these cashbacks could help cover transaction costs, renovations, or down payments, Thor noted that banks do not knowingly allow such arrangements, as the cashback portion constitutes an unsecured loan, leaving lenders exposed in the event of foreclosure.

The prevalence of all these practices has had several broader implications for the property market. Extended loan tenures and higher leverage have contributed to a two-speed market, with artificially inflated prices leading to longer times on resale market, and greater discounting at auctions.

In addition, the rising number of foreclosures has increased professional indemnity insurance costs for valuers, placing upward pressure on professional fees charged to clients.

At the same time, Thor also called for greater transparency and standardisation in property valuations. He emphasised that valuers should be engaged based on service quality and professionalism, rather than simply providing the “highest value” or “matched value”. Key performance indicators for valuers, he noted, should include response rate, turnaround time, accuracy, and consistency of valuations. Ensuring that a sufficient sample size of property values is considered could also help eliminate “cherry-picking” and provide a clearer market picture.

Earlier, EdgeProp EPIQ data had revealed how inflated prices in KL condo transactions have disrupted market valuations.

​How EPIQ prevents overvaluation

In the Malaysian real estate market, EdgeProp EPIQ has emerged as a critical analytical tool for banks and financial institutions to combat the growing issue of "artificially inflated" property valuations.

​By moving away from static, single-point appraisals towards a multi-dimensional data model, it helps lenders identify when a property's asking price or reported transaction value has been "padded" (often through hidden rebates or developer incentives).

​Traditionally, banks relied heavily on the "final" transacted price reported to authorities. However, EPIQ analyses the market through four primary lenses to ensure the collateral value is realistic:

1. Granular area averages
​EPIQ compares a specific unit's price against the broader neighborhood average.

​The reality check: If a new condo in a specific district is being sold at RM1,000 psf while the immediate area average for similar luxury builds is RM600 psf, the system flags it.

​Identifying anomalies: It detects "spikes" where specific projects have transactions significantly higher than their neighbors, which often indicates a bubble or aggressive marketing tactics rather than actual intrinsic value.

​2. Real-time auction activity
​Auction data is often considered the "truest" indicator of market floor prices because it represents what a buyer is willing to pay in a forced, transparent sale.

​The "floor" value: By integrating comprehensive auction records, EPIQ shows banks what a property actually fetches when the "marketing hype" is stripped away.

​Risk shield: If a bank sees high auction volume or significantly lower auction prices in a specific project, it can adjust its Loan-to-Value (LTV) ratio to prevent future losses.

3. New launch trends vs resale reality
​EPIQ tracks new launches (Primary Market) alongside the secondary market (Subsale).

​Developer rebates: In Malaysia, some developers offer "cashbacks" or "zero-down" packages that inflate the legal sale-and-purchase-agreement price.

​The gap: EPIQ highlights the gap between what developers are charging for new units and what similar units are actually selling for on the secondary market. If the gap is too wide, the bank can identify that the primary price is overpriced.

​4. Supply and demand density
​The platform takes into account the volume of upcoming units (supply) in a specific area.

​Overhang Risk: By looking at new launch absorption rates, banks can determine if a high valuation is sustainable or if an incoming wave of 5,000 similar units will cause a price crash shortly after the loan is issued.

5. ​Benefits for banks

For banks, Epiq acts as a defence against inflated (incentive driven) prices through:
- Providing an independent data anchor that reduces over-reliance on single valuer opinions
- ⁠Early warning signals spot anomalies and abnormal transactions
- ⁠Identifying where risk exposures are clustering (typologies, areas)

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