Buy with a Loan or Rent? Rising Rental Costs and Mortgage Options for Malaysians in 2024
As rental prices in Malaysia’s urban centers continue to rise, Malaysians increasingly face the choice of buying or renting their homes. Programs like the “My First Home Scheme” and recent adjustments to interest rates have made financing more accessible, making homeownership attractive for many. But is buying truly the better option amid Malaysia’s high property prices?
Renting vs. Buying: Analyzing the Financial Landscape in Malaysia
The Rising Cost of Renting
In Kuala Lumpur, Penang, and Johor Bahru, average rental rates for residential properties have steadily increased, driven by high demand and limited supply in prime locations. The average monthly rent in Kuala Lumpur has reached RM1,500 to RM3,000 for a typical two-bedroom apartment in popular areas, while smaller units average between RM1,200 and RM2,000. For many, these rent prices are on par with—or even exceed—monthly mortgage payments.
For instance, a 950 sq. ft. apartment in Bangsar can be rented for around RM2,500 per month. However, buying a similar unit valued at RM600,000 with a 90% mortgage results in an estimated monthly payment of RM2,300 (based on a 30-year loan at a 4.5% interest rate). For those able to make a down payment, owning can seem as financially viable as renting, especially with the added potential of property appreciation.
The Mortgage Option: Is It More Affordable?
Many Malaysians are finding that, in some locations, the cost of a mortgage can rival rental prices. Programs like the “My First Home Scheme” and incentives for first-time buyers make buying attractive, particularly with long-term benefits. However, high property prices and transaction costs in sought-after areas can make homeownership a substantial financial commitment.
According to data from Bank Negara Malaysia (BNM), the average home price has increased steadily, especially in urban centers. For example, a property worth RM500,000 requires an upfront down payment of RM50,000 (10%) and additional transaction fees (legal, stamp duty, valuation) that could add RM10,000 to RM20,000. As a result, prospective buyers need considerable savings to enter the property market.
Current Trends in the Malaysian Mortgage Market
Malaysia’s mortgage landscape has seen considerable demand, yet the approval rates have been selective. Loan rejections often occur due to borrowers’ high debt-to-income ratios or a lack of credit history. Recent data from Bank Negara Malaysia shows loan growth remains steady as interest rates have stabilized. However, high property prices are a limiting factor, especially for the younger demographic, despite the government’s efforts to ease mortgage access.
The My First Home Scheme, designed to help first-time buyers aged 35 and below, provides financing for 100% of the property value for homes under RM500,000. Although the scheme offers a helpful start, it doesn’t reduce the property’s high upfront cost, which remains a barrier for many young Malaysians.
Considerations for Malaysian Buyers: Financial Readiness and Loan Conditions
Financial readiness is crucial for those considering a mortgage. According to Cagamas Bhd., Malaysia’s National Mortgage Corporation, loan applicants must demonstrate employment stability and manageable debt. Generally, banks prefer that a home loan payment does not exceed 40% of an applicant’s gross income. As Cagamas emphasizes, “Banks assess each borrower’s ability to repay the loan over time, ensuring stable creditworthiness.”
With initiatives like Home Ownership Campaign (HOC) and tax relief on loan interest payments up to RM7,000 for properties under RM500,000, Malaysians are being encouraged to consider buying as a viable option. However, with high property costs, especially in areas like Klang Valley and Johor Bahru, affording a home remains a challenge for many middle-income Malaysians.
Conclusion: Is Buying Worth It in Malaysia’s Current Market?
For Malaysians deciding between renting and buying, several factors play into the equation:
- Monthly Costs: While mortgage payments can rival rent in some areas, buying requires a considerable down payment and additional costs.
- Incentives for First-Time Buyers: Schemes like My First Home and tax relief for first-time buyers support those considering buying but don’t address high property prices.
- Location and Lifestyle: For those planning to settle long-term, buying offers potential appreciation and stability. Renting remains attractive for flexibility and mobility.
Ultimately, the choice between renting and buying in Malaysia depends on individual circumstances, financial readiness, and long-term goals. While rising rents make homeownership appealing, high prices and upfront costs continue to pose barriers. As the market evolves, government support and stable interest rates may help more Malaysians turn homeownership dreams into reality.
