By Joseph Wong
The rental market is dynamic and subject to various economic factors, impacting both landlords and tenants alike. One such challenge that has a direct impact on the relationship between property owners and occupants is the phenomenon of rental hikes.
As indicated by Asia’s global real estate agent network IQI, a member of Juwai IQI, which recently released the first-ever Malaysia Home Rental Index, rents across Malaysia increased by 5.5% in 2023 meaning that rents are now 7.4% higher than during the pandemic's worst phase. The Rental Index is based on over 58,000 residential rental transactions since 2018.
“The average residential rent in Malaysia is RM1,975 per month. That compares to RM1,851 in Selangor and RM3,192 in Kuala Lumpur. The data suggests a shift towards recovery, with the Malaysia Home Rental Index reaching its highest point in nearly three years - since early 2020. Factors influencing these trends include supply-demand balance, seasonal variations, seasonal variations in the transaction mix and investor activity,” said Juwai IQI co-founder and group chief executive officer Kashif Ansari.
What does this mean for the stakeholders?
For landlords, this translates into increased revenue but it also means that there is a need for greater maintenance and upkeep of their properties. Rental hikes are a means for landlords to increase their rental income. This increase in revenue can contribute to the financial stability and potential profitability of property ownership.
Higher rental income allows landlords to allocate more resources towards property maintenance and improvements. This ensures that the property remains attractive, well-maintained and competitive in the market, ultimately benefiting both landlords and tenants.
For property investors, rental hikes can positively impact the return on investment. As property values appreciate and rental rates increase, landlords stand to gain a higher return, making real estate a potentially lucrative long-term investment.
For tenants, it can be an unfortunate blow as it adds to their financial strain, unless of course, they are in good financial standing. A 5.5% increase means that for a unit rented at RM2,000 (rounded for simplicity), the hike equates to RM110. Of course in the real world, rents would normally go up by absolute amounts like RM100 or RM200 in the above case instead of RM110.
And the increase might differ from place to place. The country-wide 5.5% increase in 2023 was lower than the increases in the Rental Index in Kuala Lumpur and Selangor. Kuala Lumpur's rental rates end 2023 at 28.4% above Q4 2022, although still 29% below pre-Covid levels. Selangor's market was more stable, ending 2023 with rents 10.7% higher than Q4 2022 and 5% above Q4 2019, indicating a steady market with expectations of modest growth.
While it can be arguably said that a higher rent consumes a larger portion of the tenant's budget, potentially limiting their ability to save, invest or allocate funds to other essential needs, it really depends on the relationship between the landlord and the tenant.
Some landlords would gladly forgo increasing the rent in favour of a good tenant. Take one case where a landlady opted to rent out to a tenant at a higher rent but suffered a RM20,000 bill in home repairs due to the tenant’s negligence once he left. The two-month rent deposit was not even enough for the refurbishment of the unit. Had the landlady retained the original tenant, she would have been better off.
Forecast for 2024
“Based on the robust recovery in the 2023 Malaysia Home Rental Index, our forecast is for a continuation of growth in rental demand. Given the historical resilience of the Malaysian rental market and the post-pandemic economic rebound, we project a sustained rental rate increase into 2024, particularly in high-yield urban centres such as Kuala Lumpur, Johor Bahru and Iskander Puteri.
“Furthermore, as international travel and inward tourist arrivals continue to rebound, Malaysia may see an influx of long-term residents, occupiers of short-term rentals and international students, which may also contribute to a higher demand for rental properties,” said Ansari.
The convergence of this demographic trend with the increasing inclination towards renting locally creates an opportune environment for investors to leverage the escalating rental yields. Consequently, the demand for rental properties is expected to rise, potentially leading to an increase in rental yields. It is advisable for investors and landlords to closely observe these evolving trends to optimise their strategies amid the anticipated expansion in Malaysia's rental sector. Conversely, tenants who may be adversely affected by the rise in rental costs should explore alternative housing options.
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