KUALA LUMPUR: Malaysia’s residential property market could face mounting pressure in 2027 as declining housing loan approval rates, tighter lending practices and the prospect of higher borrowing costs weigh on homebuyer demand.
JLL Malaysia managing director Jamie Tan said the potential increase in Bank Negara Malaysia’s overnight policy rate (OPR) next year could affect residential property demand, given that most homebuyers rely on mortgages to finance their purchases.
“Therefore, any increase in borrowing costs will have implications for the residential sector and Malaysia’s overall real estate market,” he said at JLL Malaysia’s Q3 2026 property market briefing today.
The potential interest rate headwind comes amid signs of weakening mortgage accessibility.
Housing loan approval rates fell to 38.36 per cent in September 2026, compared with the historical range of 40-41 per cent between 2022 and 2025.
JLL expects the full-year approval rate for 2026 to potentially fall below previous years’ levels, as banks become increasingly selective in approving housing loans.
Tan partly attributed the trend to borrowers’ creditworthiness, particularly among self-employed individuals and those working in the gig economy, who often face difficulties securing conventional financing due to the absence of fixed salaries or formal payslips.
“Even individuals who are self-employed and earn substantial incomes may struggle to secure conventional bank financing because they are unable to provide payslips or proof of a fixed salary.
“This remains one of the challenges faced by Malaysians seeking housing loans,” he added.
Tan said government-backed financing initiatives such as Skim Jaminan Kredit Perumahan could help address the issue by providing an alternative for individuals who might otherwise struggle to obtain conventional housing loans.
The financing challenges also come as residential market activity remains relatively subdued, despite a rebound in the second quarter of 2026 following a significant correction in the first quarter.
JLL’s assessment pointed to uneven conditions across key markets.
In Kuala Lumpur, residential transaction volume increased by about seven per cent between the first and second quarters of 2026.
Transaction value remained largely unchanged, suggesting a shift towards more affordable properties.
Penang, meanwhile, recorded transaction volumes and values at a five-year low in the second quarter.
Selangor’s market rebounded from the first-quarter decline but remained at its weakest second-quarter performance in four years.
Tan added that smaller and medium-sized developers had also paused or delayed launches while assessing market conditions heading into 2027.
He cautioned, however, that concerns over oversupply should not be applied across the entire residential market, as the issue was concentrated in specific property segments and locations, particularly service apartments in urban areas such as Kuala Lumpur.
Meanwhile, JLL Malaysia executive director Jeannie Tan raised concerns over the growing supply of high-end service apartments in Kuala Lumpur city centre, particularly those developed at premium prices for foreign buyers.
She said some of these developments were recording high vacancy rates, with units subsequently being rented out through short-term accommodation platforms such as Airbnb.
She noted that the lack of regulation over such rentals in the city centre, coupled with limited long-term occupancy, had made banks more cautious about financing these properties due to concerns over their viability.
“Banks are increasingly wary of developments with low occupancy rates, particularly high-end service apartments that rely heavily on short-term rentals.
“This creates a negative perception of these properties and is one of the reasons financial institutions have become more cautious in extending financing,” she said.
Jeannie warned that developers could continue adding to the oversupply of such properties if there were no measures to address the issue, particularly as some remained focused on catering to foreign buyers.
While government initiatives, including stamp duty exemptions for eligible first-time homebuyers, could help support affordability, financing accessibility and the availability of suitable housing remain key considerations for the market’s performance in 2027.