A policy shift for sustainable homeownership needed

By Joseph Wong

Housing affordability remains a pressing issue in Malaysia, with many aspiring homeowners struggling to secure a home that meets their financial means. While the government has implemented various measures to address the issue, it is clear that further refinements are necessary to ensure that housing remains accessible to all income levels.

At the 17th Malaysian Property Summit 2025 organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS), Khazanah Malaysia put forward several policy recommendations aimed at reshaping the housing market to be more inclusive and responsive to economic realities. These recommendations focus on structural changes rather than short-term financial solutions, ensuring long-term sustainability in the housing sector.

Refine housing affordability measurements

While the Ministry of Housing and Local Government (KPKT) has introduced affordability guidelines that differentiate between urban and non-urban areas, this broad classification does not account for significant price variations within cities and towns, where local housing markets operate independently, according to Khazanah Malaysia research director Suraya Ismail.

A more precise measurement system—such as the three times median-multiple ratio—should be implemented at the city and town level to provide a clearer picture of housing affordability. 

This ratio, which compares median house prices to median annual household incomes, ensures that affordability assessments are grounded in real market conditions rather than generalised regional trends, she said.

Don’t allow mortgages with longer time periods

Extending mortgage terms beyond 35 years artificially inflates house prices by increasing the total financing available to buyers, Suraya said. While longer loan tenures reduce monthly repayments, they also create a market dynamic where higher prices become the norm, making housing less affordable in the long run.

Many financial advisors, along with several investors, pointed out that shortening the term of the loan would reduce the total interest a borrower would need to pay, resulting in significant savings, in particular for long-term loans with high interest rates. Consider a 30-year mortgage versus a 15-year mortgage. Even if the interest rates are the same, the total interest paid on the 30-year loan will be significantly higher because interest accrues over a longer period, according to an online home loan website.

For example, a 30-year RM300,000 loan would result in RM382,633.47 in total interest paid, bringing the total cost of the property to RM682,633.47. In contrast, a 15-year RM300,000 loan would incur RM226,950.78 in interest, making the total cost RM455,682.69—a difference of RM226,950.78. However, this depends on the borrower’s ability to afford the higher monthly payment, that is, RM1,896.20 for a 30-year loan versus RM2,531.57 for a 15-year loan. 

But this simplified example shows how the borrower can save on interest paid. By capping mortgage terms at a reasonable period, the housing market can experience more sustainable price growth, ensuring that homeownership remains within reach for future generations without excessive financial strain. The key is to determine a monthly payment that fits the borrower's budget rather than extending the loan term.

Introduce a down-market penetration ratio

One of the most effective ways to assess housing market efficiency is through the down-market penetration ratio. This indicator measures the lowest-priced, unsubsidised formal housing unit produced by the private sector in significant quantities (at least 2% of annual housing production) relative to the median household income.

By tracking this ratio, policymakers can determine whether:

• The market is adequately filtering older homes to lower-income groups.
• Developers are catering only to the aspirational class while neglecting affordable housing.

Monitoring this ratio will provide valuable insights into housing supply patterns and guide policies that ensure adequate affordable housing production.

Shift the concept of housing market efficiency

The traditional neo-classical perspective views market efficiency in terms of price mechanisms and marginal utilities, with government intervention seen as necessary only when economic problems become social problems.

However, a more institutional approach should be adopted, defining market efficiency as the ability of the housing sector to adapt its structure to meet economic needs. This means recognising that housing is not just a commodity but a social necessity, requiring proactive regulatory frameworks that guide supply, demand and price stability.

Ensure house prices are genuinely affordable

A common misconception in housing policy is that affordability can be achieved through cheap and accessible financing. While easier financing helps individuals secure homes, it also creates artificial demand, pushing prices higher when supply is relatively inelastic.

Rather than relying on financing schemes, policies should focus on:

• Ensuring a stable supply of affordable housing
• Discouraging speculative investments
• Regulating land use to promote sustainable development

Only by addressing price dynamics directly can long-term affordability be achieved.

Migrate to a Build-Then-Sell model

Currently, Malaysian homebuyers carry the risk of housing development delays and failures under the sell-then-build model. In this system, buyers effectively act as investors, financing projects before they are completed, often without adequate consumer protections.

A fairer alternative is the build-then-sell model, where:

• Homes are fully constructed before being sold.
• Buyers no longer bear commercial and construction risks.
• Developers are held accountable for project completion.

This model has been successfully implemented in several developed countries and ensures that homebuyers receive what they pay for without exposure to undue financial risks.

To make housing truly affordable, policymakers must move beyond quick fixes and financial incentives. Instead, they should focus on structural reforms that promote sustainable pricing, regulate speculative demand and encourage responsible housing development.

By refining affordability measurements, limiting excessive mortgage terms, tracking housing supply trends, redefining market efficiency, prioritising affordability over financing and shifting to a build-then-sell model, Malaysia can create a housing market that serves all income groups—ensuring that homeownership remains an achievable dream for generations to come.

Don't extend mortgages
beyond 35 years, said Suraya.

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