KUALA LUMPUR: Growth in Malaysia’s property sector in 2026 is expected to be driven by market forces, with a noticeable “step-up” anticipated for the year, said Datuk Paul Khong, group managing director of Savills Malaysia Group.
He added that the market will continue to benefit from the inherent strength of assets that align with future needs, highlighting the importance of long-term value and functional design in investment decisions.
Khong noted that some quarters remain cautious about a supply overhang, pointing out that residential and high-rise property overhang in the third quarter of 2025 (Q3 25) rose 12 per cent year-on-year (YoY) and 5 per cent quarter-on-quarter (QoQ), marking the second consecutive quarterly increase since the low in Q1 25.
Despite this, he said Savills Malaysia is not overly concerned, as the increase primarily reflects the aggressive project launches over the past three years, aimed at capturing the delayed sector recovery since 2022.
“We believe this nascent uptick is not a major risk at this juncture, considering the sustained expansion in the labour market and income growth. Meanwhile, the first Bank Negara Malaysia interest rate cut of 25 basis points in July 2025 to 2.75 per cent in five years will serve as a catalyst to boost the property market sentiment, coupled with the government’s concerted efforts to alleviate the cost of living for the people.
“More importantly, Malaysia’s employment market has been growing steadily and has far exceeded the pre-pandemic employment level, thanks to the growing economy. It is even more encouraging that labour participation has hit a record high of 70.9 per cent in September 2025 while unemployment has dipped to a 10-year low of 3 per cent, which could partly explain the steady and resilient domestic demand.
“This positive development is expected to continue given our favourable demography, which will further underpin the resilience of Malaysia’s domestic demand,” he told Business Times.
Khong added that Malaysia’s strong economic fundamentals and political stability lay a solid foundation for real estate growth supported by positive market trends and sustained investment activity.
Government policies will remain a key influence on both domestic and foreign investments, with key sectors focused on logistics and manufacturing, particularly selected data centre developments, driving industrial demands, he noted.
Sustainability and wellness are also becoming important, shaping designs and investment decisions across residential, hospitality and office segments, driven by energy efficiency and healthier environments.
Consumer-focused policies will continue to boost spending whilst experiential retail formats continue to be in high demand, he said, adding that Visit Malaysia Year 2026 (VMY26) will be another major catalyst for the year.
“We hope to see a targeted 47 billion foreign visitors and RM329 billion in tourism revenues with a RM700 million VMY26 promotional campaign budget.”
AllianceDBS sees gradual recovery in the property market
Quah He Wei, an economist with AllianceDBS Research Sdn Bhd (ADBS), believes Malaysia’s property market will improve gradually this year, given the favourable supply-demand dynamics.
“While it is true that low affordability could be a concern for homebuyers, we believe that Malaysia’s property market is heading towards a sustained recovery given our healthy economic growth momentum, lower interest rates and strong growth in the labour force,” he said.
He said Malaysia’s third quarter of 2025 (3Q 25) property sector demonstrated healthy growth momentum (+10 per cent QoQ, -3 per cent YoY), despite elevated tariff-induced economic slowdown concerns during the quarter.
“This is in line with the stronger-than-expected Q3 25 gross domestic product (GDP) growth of 5.2 per cent YoY, thanks to robust domestic demand and positive net exports. Notably, the commercial and industrial property segments were the standout performers, registering a robust 13 per cent and 11 per cent QoQ increase, respectively, in Q3 25 transactions as record-high approved investments in 2021-2024 continue to be implemented.
“We believe the overall property market will continue to exhibit resilient underlying strength in 2026, in tandem with stable household spending and investment activities,” he told Business Times.
Quah said this resilience is expected to be further supported by the 2026 Budget, which continues to promote housing affordability through targeted financial and tax incentives.
Specifically, the government will double the financing guarantee allocation for first-time homebuyers to RM20 billion from RM10 billion to enable more gig workers and self-employed individuals to own homes and extend the full exemption of stamp duty on first homes below RM500,000 until 2027.
Furthermore, the proposed increase in financial assistance in 2026 under the Sumbangan Tunai Rahmah and Sumbangan Asas Rumah programmes to RM15 billion from RM13 billion, and the 7 per cent salary increase for civil servants under Phase 2 of the Public Service Remuneration System are expected to contribute to a healthy housing demand in 2026.
Infrastructure delivery to support the property sector, says Savills Malaysia
Khong said 2026 will be a critical delivery year for major infrastructure projects, reinforcing urban development as a key economic priority. These include the LRT Shah Alam Line (LRT3), expected to be completed by the second quarter of 2026; the Johor Bahru–Singapore RTS Link, slated to begin operations by December 2026; the East Coast Rail Link (ECRL), with its connection to the Gombak Integrated Terminal targeted for completion by December 2026; and the LRT Mutiara Line in Penang, with construction commencing in January 2026.
He added that Malaysia’s economic trajectory is expected to remain firmly in positive territory heading into 2026.
Ministry of Finance data show the economy expanded by 5.2 per cent in the third quarter of 2025, keeping the country on track to meet its full-year growth target of 4 to 4.8 per cent. Key contributors were manufacturing (industrial) and the service sectors, underpinned by strong domestic and foreign investments, a resilient labour market, political stability and manageable inflation.
Structural reforms under the 13th Malaysia Plan (2026–2030) and incentives announced in Budget 2026 are also supporting growth.
Approved investments reached RM285.2 billion in the first nine months of 2025, up 13.2 per cent year-on-year. Foreign direct investment accounted for RM150.8 billion (52.9 per cent), while domestic investment stood at RM134.4 billion (47.1 per cent), reflecting balanced investor confidence.
Johor led the way with RM91 billion in investments, driven largely by the data centre boom, followed by Selangor, Kuala Lumpur, Penang and Kedah. These investments are expected to generate about 153,000 new jobs.
Logistics and data centres power industrial growth
Rapid artificial intelligence (AI) adoption and rising demand for digital infrastructure are accelerating industrial growth across Klang Valley, Johor and Penang. Johor has emerged as a regional hub with over 1,000 acres of data centre land with transactions valued at RM4.58 billion since 2021.
Kevin Goh, head of Savills Malaysia’s logistics, industrial and data centre, expects a robust market in 2026 driven by a strengthening ringgit and sustained foreign direct investments (FDIs) from major economies such as China and the US.
He added that developers are actively converting mixed-use lands into industrial developments, driving the rise of managed industrial parks (MIPs).
Goh expects moderate rental growth for new facilities and higher capital values for premium sites, specifically those with high power and water infrastructure (as required for data centres).
The office market favours quality
Kuala Lumpur’s Grade A office market remained resilient in 2025, with leading buildings maintaining healthy occupancy as tenants prioritised sustainability, technology and accessibility. These fundamentals are expected to carry into 2026, with the market continuing to favour quality over quantity.
Zawani Abidin, head of Savills Malaysia’s Worldwide Occupier Services, expects occupier demand to come from shared services centres, technology firms and selective regional headquarters expansions.
Tenants will remain focused on efficiency, flexibility and wellness features while the hybrid work model continues to influence space-efficient leasing decisions, he said.
“With limited new supply, well-positioned submarkets are expected to remain supported, while Grade A buildings continue to raise standards through green certifications, public transport connectivity and enhanced amenities.”
Retail evolves into community hubs
Murli Menon, head of Savills Malaysia’s retail services, described the retail sector as resilient but evolving. Supported by moderate inflation and people-centric subsidies, household spending grew about five per cent in 2025, although performance varied by segment.
Personal care, fashion and experiential food and beverage performed well, while big-ticket items such as furniture lagged due to cost-of-living pressures.
He added that a distinct structural change is underway, driven by a preference for convenience and connectivity.
Murli noted that new supply is increasingly concentrated in mixed-use, neighbourhood-focused projects rather than traditional mega-malls. Consequently, landlords are pivoting from new construction to the refurbishment and repositioning of existing assets.
To differentiate, top-performing malls are allocating more space to “”retailtainment”—integrating indoor adventure parks, social spaces, and curated tenant mixes that offer unique experiences beyond simple transactions.”
Looking to 2026, Murli said the sector is poised for a dynamic transformation driven by “Visit Malaysia Year 2026” and the adoption of new technologies.
He also predicts a rise in “agentic” AI and social commerce, alongside a boom in wellness retail catered to an ageing population.
“While the tourism influx will benefit the hospitality and F&B sectors, success will depend on adaptability; retailers must blend seamless digital integration with memorable physical experiences to remain relevant in a competitive market.”
Hospitality pivots to sustainability
The hospitality sector is undergoing a strategic transformation towards sustainability, anchored by the upcoming “Visit Malaysia 2026” campaign.
Central to this shift is the introduction of a new Environmental, Social, and Governance (ESG) Certification by the Malaysian Association of Hotels (MAH), designed to standardise green practices industry-wide.
This shift is driven by regulatory alignment, rising energy costs and the increasing demand for eco-friendly accommodations among sophisticated travellers.
Fong Kean Hwa, head of SMG’s research and consultancy, noted that fundamental drivers, including extended visa-free entry and improved air connectivity, position the market for resilience well beyond the 2026 targets of 47 million visitors and RM147.1 billion in receipts.
“Backed by government incentives, this trajectory is expected to catalyse continuous capital investment in hotel assets, elevating visitor experiences and generating lasting economic spillovers across urban centres,” he said.
Source: New Straits Times (7 January 2026)