Johor and Penang Gain Ground as Kuala Lumpur Faces Uneven Property Recovery

Fewer deals, more money and a widening regional gap

Malaysia recorded 196,232 property transactions worth RM107.68 billion in the first half of 2025. The number of deals fell 1.3 percent from a year earlier, while their combined value rose 1.9 percent. Behind those national figures, Johor and Penang gained momentum from manufacturing, logistics and investment in data centers, while Kuala Lumpur continued to struggle with a large stock of unsold apartments.

As of October 15, 2025, the market presents a mixed picture. Industrial properties are attracting businesses and investment, affordable homes dominate residential sales, and office leasing in the capital is improving. Housing demand is more selective, especially in locations where years of construction have left too many units competing for buyers.

Official figures point to a softer market rather than a broad slump. Prices have remained relatively stable despite fewer sales. The difference between regions reflects where jobs, transport connections and business investment are expanding, and where existing supply is still waiting to find buyers.

Malaysia entered this period after recording 260,516 residential transactions worth RM106.92 billion in 2024. The national house price index rose 1.4 percent that year, although inflation reduced the gains in purchasing power. Average home prices ended 2024 at about RM483,879.

Terraced house prices increased modestly in 2024. Prices for homes in tall residential buildings also edged higher on average, before slipping from the previous quarter late in the year. Mortgage balances continued to grow, and construction activity increased. Early 2025 then widened the gap between expanding industrial centers and urban housing markets carrying excess apartment stock.

Affordable and existing homes dominate sales

Residential properties accounted for about six in ten transactions in the first half of 2025. Terraced houses remained the most frequently traded type of home, while properties priced at RM300,000 or below represented roughly 53 percent of residential transactions.

Existing homes accounted for nearly 80 percent of residential deals. This secondary market involves a buyer purchasing from an existing owner, rather than buying a newly launched unit from a developer. Established neighborhoods with transport access, schools and nearby jobs remained attractive to buyers.

Developers responded to slower sales by reducing new releases. Housing launches fell by about half from a year earlier to 23,380 units in the first six months of 2025. Launching fewer homes should give the market more time to sell existing stock, although the location and price of those units still matter.

The national house price index stood at around 227 points in the first half, with the average home price near RM490,376, up about 0.7 percent from a year earlier. An index tracks changes in prices over time, making it easier to see the direction of the market than by looking at individual sales.

Terraced homes recorded modest price increases, while apartment values slipped in several states with heavy supply. Perlis and Johor recorded the strongest recent gains among the smaller markets. Rising construction costs are likely to feed into selling prices in selected locations, adding pressure where buyers already need to keep purchases within a limited budget.

Johor draws commuters, manufacturers and investors

Johor has become a growth engine in 2025. Its residential transaction value increased by about 14 percent in the first quarter, while industrial transaction numbers and values also rose. The state led the country in new residential launches, and financing flowed into factories and logistics facilities.

The Johor Singapore Special Economic Zone is attracting manufacturers, businesses developing digital infrastructure and service companies. Its appeal combines available land, access to power and proximity to Singapore. Global technology groups have expanded their presence in southern Malaysia, strengthening demand for sites that can support data centers and advanced manufacturing.

Housing demand comes from several directions. Buyers seeking homes for their own use favor landed properties, while apartments near transport connections attract renters who commute to Singapore. Improvements in travel links support both groups by making access to employment easier.

Johor Bahru and its main surrounding corridors also recorded improvements in office and retail activity, although these gains came from a low starting point. The state's property momentum therefore extends beyond housing, with businesses seeking premises as investment and employment expand.

Factory and warehouse tenants have shown strong interest across Johor, Klang Valley and Penang. Low vacancy in modern industrial buildings, tenants committing to space before completion and planned industrial parks near highways all point to continuing activity in these corridors.

Penang's electronics industry supports demand

Penang's electrical and electronics industry continues to support property demand on the island and in Seberang Perai. Batu Kawan's industrial base has attracted multinational suppliers, creating demand for worker housing, logistics facilities and retail businesses serving the surrounding communities.

Apartment demand has remained relatively stable, although transactions and their combined value dipped slightly at the start of 2025. Penang's office market held firm, while retail occupancy stayed in the low seventies as a percentage of available space.

Local authorities have also introduced an affordable housing plan covering the next decade. It calls for tens of thousands of homes using faster modular construction, in which building components are assembled as modules. The plan addresses housing needs alongside the state's expanding industrial economy.

Kuala Lumpur's homes face a slower market

Kuala Lumpur's residential market moved in a different direction. In the first quarter of 2025, home prices rose 3.2 percent from a year earlier, but transactions fell 8.7 percent. Buyers remained selective, making purchase incentives important in a city with substantial excess apartment supply.

Completed unsold homes nationwide increased to about 26,911 units in the first half of 2025. More than half were condominiums and apartments. Kuala Lumpur's concentration of homes in tall buildings remains a major drag on the pace at which available units find buyers.

An overhang means completed homes are still waiting to be sold. Developers have already built these units, but sales have not kept pace with supply. In the capital, this stock accumulated during the previous decade and continues to weigh on residential activity.

The upper end of the residential market recorded better take up. An interest rate cut earlier in 2025 helped, alongside continuing interest from buyers in the Middle East, Asia Pacific and Europe. This improvement sits alongside slower activity elsewhere in the city's housing market.

Offices and shops show a different recovery

Kuala Lumpur's commercial property market is performing better than its residential market. Companies have been moving into newer, greener office towers, strengthening leasing demand. In the second quarter of 2025, net absorption turned positive in every city submarket.

Net absorption measures the change in occupied space. A positive figure means businesses occupied more space than they vacated during the period. Kuala Lumpur's citywide office vacancy rate fell to about 19 percent, compared with roughly 24 percent a year earlier, a reduction of about five percentage points.

JLL Malaysia, which tracks office leasing across the city, described the second quarter as a turning point:

Kuala Lumpur's office market showed resilience, with positive absorption across all submarkets.

New buildings in prime areas added higher quality office space. Several large projects also brought their target completion dates forward to 2026, adding to the changes in the city's office supply.

Retail vacancies declined compared with the middle of 2024. Food and fashion brands continued to expand, while entertainment businesses and coworking tenants helped fill space left by several prominent closures.

Two landmark shopping developments, including 118 Mall and a new project near KLCC, are scheduled within the next year. Their arrival will add retail space as existing centers work to maintain occupancy and attract tenants.

Rental returns and measured price growth

Apartment rental yields reached an average of about 5.1 percent in early 2025, with Kuala Lumpur apartments at roughly 4.6 percent. A gross rental yield compares annual rent with the property's price before expenses are deducted. Investors have been returning to locations where rental demand is strong and yields exceed borrowing costs.

Homes near universities, railway lines and employment centers continued to record the most stable rent growth. These locations attract tenants who need convenient access to study or work, reinforcing the value of transport and nearby services.

Foo Gee Jen, past president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia and an adviser at CBRE WTW, told an industry summit that measured price increases are healthier than the sharp rises seen a decade ago:

A 4% growth rate may not excite investors, but it is healthy and aligns with bank interest rates.

His view reflects a shift toward sustainable pricing. The focus on affordability also points toward more targeted subsidies and better data to adjust housing supply to local needs, rather than broad incentives applied across the market.

Factories and warehouses lead the expansion

Industrial real estate is the strongest performing segment of 2025. Transactions increased by about 8.5 percent to more than 4,100 deals in the first half, while their combined value rose to roughly RM14.25 billion. Johor, Penang and Selangor led activity as logistics, automotive, and electrical and electronics businesses expanded.

Klang Valley added about 2 million square feet of new grade A warehouse space in the second quarter. Despite that extra supply, vacancy fell sharply to near 2 percent as tenants occupied the buildings. Grade A describes modern premises offering higher quality facilities.

Capital values for modern industrial sheds rose by close to 4 percent from a year earlier. Tenants favored buildings that use energy efficiently and provide quick access to highways, supporting demand in the main industrial corridors.

Some investors paused purchases because of tariff uncertainty and changes in global supply chains. Occupier demand remained firm, however, with businesses continuing to seek premises for production, storage and distribution.

Industrial demand across the main corridors also comes from a range of sectors. That diversity reduces exposure to difficulties affecting any single industry, even as individual projects face constraints involving electricity, costs and workers.

Data centers expand as power needs grow

Malaysia's installed data center capacity now exceeds 600 megawatts, with around 1,300 MW under construction and a future pipeline larger than 3,400 MW. Megawatts measure electrical power, an important yardstick for facilities that run large numbers of computer servers.

The capacity under construction is more than twice the roughly 600 MW already operating. The much larger future pipeline places power supply planning at the center of the sector's expansion.

Costs and approvals have become tighter as the market matures. Developers are forming partnerships to deliver sites with power available, placing greater attention on project quality, access to renewable energy and the electricity grid's ability to support demand over time.

Knight Frank Malaysia, in its review of multiple property sectors for the first half of the year, described the balance between continuing activity and external pressures:

The market continues to demonstrate resilience despite global headwinds and increasing policy complexity.

Electricity costs, power availability and shortages of skilled workers remain concerns for data centers and advanced manufacturing. Some analysts have cautioned that demand and grid improvements need to keep pace with the large planned pipeline to sustain investment returns.

Transport and special zones redirect investment

The East Coast Rail Link passed the 80 percent completion mark, with construction nearing its final stages. The Pan Borneo Highway continues to improve access across Sabah and Sarawak. These projects are changing the connections between businesses, communities and transport routes.

In southern Malaysia, the RTS Link between Johor Bahru and Woodlands is under construction. Alongside the Johor Singapore Special Economic Zone, it supports the prospect of easier travel, stronger trade and tourism, and demand for warehouses, hotels and homes.

By the middle of 2025, authorities linked to the special economic zone had approved more than RM37 billion in projects, with further commitments in the pipeline. The zone is accelerating investment approvals and supporting supply chains connecting southern Malaysia with Singapore.

Other plans include an aero park in Selangor and a new highway interchange intended to open up land in Negeri Sembilan. Together, transport improvements and investment zones are strengthening demand for industrial parks near new connections and improving prospects for nearby townships.

The main developments span several periods:

• Mid 2024: Malaysia restored a tiered Malaysia My Second Home program.
• First quarter of 2025: Johor's residential transaction value rose about 14 percent, while Kuala Lumpur's residential transactions fell 8.7 percent.
• First half of 2025: National property transactions totaled 196,232, and housing launches fell to 23,380 units.
• Mid 2025: Projects approved by authorities linked to the special economic zone exceeded RM37 billion.
• Second quarter of 2025: Kuala Lumpur recorded positive office absorption in every submarket.
• 2026: Several large office projects have brought forward their target completion dates.
• End of 2027: The extended stamp duty exemption for qualifying first home purchases is due to run until this date.

Buying rules and Budget 2026 proposals

Malaysia restored its tiered Malaysia My Second Home program in the middle of 2024, widening options for people seeking long stays. Eligibility depends on fixed deposits and property purchase thresholds, with different requirements for each tier. States continue to set their own minimum property prices for foreign buyers, and those thresholds vary by location and market conditions.

Budget proposals for 2026 include a plan to increase stamp duty on property transfers by non citizens and foreign companies from 4 percent to as high as 8 percent. Stamp duty is a tax charged on the transfer. The increase is a proposal at this stage.

The immediate effect on national transaction numbers is likely to be modest because foreign buyers accounted for about 0.6 percent of residential transactions in 2024. Local buyers, meanwhile, benefit from an extension of the full stamp duty exemption for first home purchases priced at up to RM500,000 until the end of 2027.

Authorities have also introduced a tax deduction for expenses connected with converting commercial buildings into housing. The measure aims to revive aging urban areas and add homes in locations where housing demand persists.

Lenders continue to expand their housing loan books. Government credit guarantees support first time buyers and people working for themselves who have viable incomes but limited documentation, helping address a financing problem for borrowers outside conventional salary arrangements.

Unsold homes and local incomes remain central risks

Malaysia's main housing risk is a mismatch between what developers build and what households can afford or want to buy. Completed unsold homes approached 27,000 units nationwide in the first half, with the problem concentrated in condominiums and serviced apartments.

Including units at earlier stages of construction, unsold inventory across the pipeline exceeded 43,000 units in early 2025. A large amount of property value was tied up in suburban projects lacking transport connections and amenities. Developers have responded with fewer launches, units sized more closely to demand and designs suited to local incomes.

The share of housing stock available for rent remains low by international standards, limiting choices for workers who need to move. Living costs and gaps between wage growth and housing affordability also continue to burden first time buyers.

Policy makers and industry leaders have urged more targeted social housing support and a common data platform to match supply with demand at neighborhood level. Johor and Penang's industrial momentum, Kuala Lumpur's improved office leasing and the country's preference for affordable existing homes all underline the same practical issue: property performance depends on the needs of the people and businesses in each location.

Key Points

• Malaysia recorded 196,232 property transactions worth RM107.68 billion in the first half of 2025. Volume fell 1.3 percent, while value rose 1.9 percent.
• Johor and Penang gained momentum from manufacturing, logistics, data centers and transport investment.
• Kuala Lumpur's first quarter home prices rose 3.2 percent, while residential transactions fell 8.7 percent.
• The capital's office vacancy rate fell to about 19 percent from roughly 24 percent a year earlier.
• About 53 percent of residential transactions involved homes priced at RM300,000 or below. Nearly 80 percent involved existing homes.
• New housing launches fell by about half to 23,380 units, while completed unsold homes reached about 26,911 units.
• Industrial transactions rose about 8.5 percent to more than 4,100, with a combined value near RM14.25 billion.
• Data center capacity exceeds 600 MW, with around 1,300 MW under construction and more than 3,400 MW in the future pipeline.
• Budget 2026 proposes higher stamp duty for some foreign purchasers, while the qualifying first home exemption extends to the end of 2027.
• Housing affordability, excess apartment supply, electricity capacity and skilled workers remain key constraints.