Built but Unwanted: Malaysia's RM17.78 Billion Property Overhang and the Developer Profit Problem

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JoeGetz
30 Sep 2026
17
SubCategory | Markets

Built but Unwanted: Malaysia's RM17.78 Billion Property Overhang and the Developer Profit Problem

by JoeGetz, 30 September 2026

Malaysia's residential property market has a dirty secret sitting in plain sight: 33,094 completed homes worth RM17.78 billion remain unsold as of the first half of 2026, up from 30,471 units worth RM17.73 billion in the second half of 2025, according to the National Property Information Centre (NAPIC). The numbers keep climbing. The excuses keep flowing. And the developers keep building.

This is not a market correction. This is a structural failure engineered by decades of developer-friendly policies that have allowed the industry to socialise losses while privatising profits. The overhang is not confined to luxury high-rises anymore—significant unsold stock is now recorded in the affordable and mid-priced segments, the very categories developers claim to be serving.

It's time to call this what it is: a reckoning long overdue for an industry that has been profiting handsomely while shifting virtually every risk onto the buyer.

The Scale of the Problem: By the Numbers

The overhang extends far beyond residential units. Unsold completed serviced apartments have risen to 23,375 units worth RM19.33 billion, with over 55 per cent priced between RM500,001 and RM1 million. Combined, the residential and serviced apartment overhang represents over RM37 billion in dead capital locked in properties that the market has rejected.

What makes this particularly damning is that the problem is worsening despite an otherwise resilient transaction market. The overall property market recorded 187,320 transactions worth RM105.12 billion in the first half of 2026, with residential properties accounting for 59.3 per cent of total transactions at 110,998 deals. Transactions are happening—but a substantial pool of completed homes is still failing to find buyers.

The overhang is heavily concentrated in high-density economic hubs like the Klang Valley, Johor, and Perak. And critically, condominiums and apartments account for over 60 per cent of the national residential overhang. These are precisely the products developers have been churning out with reckless abandon, driven by the seductive economics of high-density, high-margin high-rise development.

The Sell-Then-Build Scam: How Developers Shift All Risk to Buyers

To understand how we got here, we must examine Malaysia's Sell-Then-Build (STB) system—a financing structure that is, at its core, a perverse inversion of risk and reward.

Under STB, homebuyers are forced to buy houses before they are built. In exchange for a promised home, the purchaser agrees to provide full payment of the purchase price to the developer, which funds the construction of the project. These funds are usually secured through mortgages, which are disbursed in stages to the developer's Housing Development Account.

The Khazanah Research Institute (KRI) describes this system with brutal clarity: "Under the STB system, housing developers and banks benefit by shifting the costs and risks of housing development to the house buyer." By linking consumer mortgages to the production of housing, the system allows developers to gain access to essentially free financing to build houses, as the financial costs and risks are primarily borne by the buyers.

This is not a housing delivery system. It is a conduit financing mechanism that transfers working capital from homebuyers—typically young families borrowing money they will repay over 30 years—to developers who pocket the profits while externalising the risks.

The KRI's analysis is unsparing: the STB system "fundamentally creates perverse incentives for actors in housing development". Those perverse incentives have produced exactly what we see today: speculative development, product mismatch, and a growing mountain of unsold completed homes.

The Developer Profit Margin: 20 to 30 Per Cent—Or More

Let's talk about what developers actually make. The industry-standard profit margin for residential development in Malaysia is 20 to 30 per cent, according to Rehda's own Johor chapter. Listed developers routinely report gross margins of 30 to 38 per cent—Glomac maintained a gross profit margin of 31.4 per cent in its latest quarter, with management comfortable with "low-to-mid-30% margins" for the coming year. Lagenda Properties, which specialises in affordable housing, reports gross profit margins of 38 per cent. E&O reported a property development EBIT margin of 35.7 per cent.

These are margins that would make manufacturers weep with envy. And yet developers cry poor whenever the government proposes any measure that might compress their profits.

Ishak Ismail, president of the Malaysian Institute of Property and Facility Managers (MIPFM), has stated the obvious with refreshing bluntness: "Unsold properties are essentially products that the market had rejected, meaning developers should consider lowering prices in the same way businesses would reduce the price of goods that remained unsold for too long." His prescription is simple: "If the developer initially has a 30 per cent margin, reduce it to 20 per cent. If it still does not sell, reduce it to 15 per cent, then 10 per cent. At least the property can be sold".

This is basic market discipline. When a product doesn't sell, you reduce the price. But Malaysian developers have been shielded from this reality by government interventions—Home Ownership Campaigns, stamp duty exemptions, credit guarantee schemes—that artificially sustain demand and allow prices to remain inflated.

The Affordability Chasm: Prices That No One Can Afford

The fundamental problem is that median household income has not kept pace with building costs, so the bulk of new supply clusters above what first-time buyers can afford, even as the RM300,000 and below segment is classified as "affordable" by price tag.

The numbers are damning. Malaysia's median house price reached around RM486,070 in Q1 2025, while the median monthly household income sits below RM6,500. Using the internationally accepted standard that house prices should not exceed three times annual household income, the reasonable price should be around RM253,000—far below the current median.

In Kuala Lumpur, the median house price is approximately RM700,000, with a price-to-income ratio reaching 5.7—far exceeding the manageable level of three. Even in Selangor (median terrace price around RM550,000) and Johor (RM465,000), both remain in the "seriously unaffordable" category.

The consequence is stark: only 10 per cent of new housing is considered affordable to the bottom 47 per cent of households earning below RM6,000 per month. Households earning below RM3,000 monthly—approximately 15 per cent of the population—have access to merely 3 per cent of new housing units.

Developers are not building for Malaysians. They are building for a market that doesn't exist at the scale they imagine, then demanding government bailouts when the units don't sell.

The "Affordable Housing" Con: Shoe-Boxes and Cross-Subsidies

When developers do deign to build "affordable" housing, the product is often a travesty. To hit the sub-RM300,000 price point on expensive land, some developers rely on hyper-dense shoe-box configurations with restrictive layouts, poor workmanship, inadequate family-friendly spaces, and limited parking.

The location is equally problematic. Many low-priced projects are developed on cheap, peripheral land far from urban employment centres, lacking adequate public transport connectivity, social infrastructure, and amenities. Facing long, expensive daily commutes, many target buyers prefer to rent units closer to their workplaces rather than lock themselves into far-away properties with high commuting costs.

And then there's the hidden cross-subsidy mechanism. Developers recover losses on price-controlled affordable units by inflating prices on market-rate units, adding RM50,000 to RM100,000 to what buyers pay. The "affordable" housing is subsidised by the very buyers who are already being overcharged.

Rehda's own survey data confirms the financing chokehold. End-financing loan rejections were cited as the top reason for unsold units (30 per cent), followed by high pricing (21 per cent) and unreleased bumiputra units (16 per cent). A significant portion of the target demographic—gig-economy workers and young professionals—struggles to clear strict Debt Service Ratio assessments, with existing commitments like PTPTN student loans and vehicle financing, paired with irregular documentation or weak credit profiles, leading to high loan rejection rates.

The Location and Product Mismatch: Building the Wrong Thing in the Wrong Place

Olive Tree Property Consultants founder Samuel Tan has identified what he calls "legacy developments planned during the 2012-2017 speculative cycle, including projects that had been targeted at foreign and cross-border buyers whose demand did not materialise to the extent originally anticipated".

"Overhang is heavily concentrated in specific states and price segments; much of it are legacy stocks from the 2012 to 2017 speculative wave aimed at foreign/cross-border buyers who never materialised to the expected extent" , Tan said.

The development cycle compounds the problem. Approval-to-completion cycles can take three to four years, meaning housing being completed today might have been planned for a very different market. "The preferences and tastes of new buyers could have changed, rendering some of these unsold stocks unattractive," Tan noted.

This is not a market failure. It is a planning failure enabled by a system that allows developers to build first and ask questions later—secure in the knowledge that if the units don't sell, the government will step in with another Home Ownership Campaign.

The Data Blind Spot: Who Are We Actually Building For?

Tan has highlighted a significant data gap that hampers policymakers' ability to address the affordability problem. Current data compiled by the Statistics Department is largely classified by income group and locality rather than age, making it impossible to establish how homeownership rates vary among different generations.

Without age demographics, stakeholders cannot distinguish between young people who cannot afford to buy and young people who are choosing to rent or delay homeownership. The absence of a baseline homeownership-by-age rate also makes it difficult to determine whether housing policies are actually narrowing the youth homeownership gap or merely helping to reduce existing property inventory.

This blind spot is convenient for developers. It allows them to claim they are building for young Malaysians without any accountability for whether those young Malaysians can actually afford—or want—what is being built.

The Rehda Response: More Bailouts, Please

What is Rehda's proposed solution to the crisis? A special Home Ownership Campaign (HOC) 2027 to help absorb existing completed residential units.

In other words: more government intervention to stimulate demand for products that the market has already rejected. More subsidies. More incentives. Anything except the one thing that would actually work: reducing prices.

Tan has cautioned that demand-side incentives could "allow developers to maintain prices that might otherwise need to adjust to clear mismatched inventory". This is the crux of the problem. Government intervention is not solving the overhang; it is perpetuating it by shielding developers from market discipline.

Ishak Ismail has acknowledged that government initiatives such as stamp duty exemptions and home ownership campaigns could help stimulate demand, but "such measures could not be relied on indefinitely". He has also backed a shift towards the build-and-sell model, which would require developers to have sufficient funds to complete properties before selling them, meaning they would need greater financial strength and confidence in market demand.

The Build-Then-Sell Reform: A Step in the Right Direction

The government's plan to mandate a shift to the Build-Then-Sell (BTS) system is a significant step toward realigning the risk and rewards of housing development.

Under BTS, developers would have to complete housing units before selling them. This would:

Reduce buyer exposure to abandoned projects
Force developers to have greater financial strength
Encourage greater discipline in project planning
Allow buyers to see the completed property before purchasing

Ishak Ismail predicts that under BTS, "smaller developers will consolidate, while only financially stronger and more established developers remain in the market". This is not a bad thing. The Malaysian property industry has been overcrowded with undercapitalised players who take on excessive risk because the STB system lets them gamble with buyers' money.

However, the BTS reform must be paired with other measures. As Tan has argued, "Tightening approvals can address the supply issue, but it does nothing to directly clear the existing overhang". A broad tightening could also risk creating shortages in genuinely undersupplied micro-markets, such as areas close to public transport and priority growth corridors.

The Profit Margin Question: Time to Give Them a Taste of Their Own Medicine

The most pointed critique comes from within the industry itself. Ishak Ismail's prescription is worth repeating: developers should be prepared to reduce their profit margins to clear unsold properties instead of relying heavily on government incentives.

His logic is irrefutable: a developer with a RM500 million gross development value and a 20 per cent profit margin would still make RM80 million if it absorbed RM20 million worth of unsold stock. "So instead of giving a discount on the entire project, perhaps they could reduce the price of that unsold portion and absorb part of the loss. The market can probably absorb that," he said.

This is the fundamental truth that developers refuse to accept: they have been profiting for decades, and it is time for them to bear some of the pain. The STB system has allowed them to externalise risk onto buyers while pocketing 20 to 38 per cent margins. The overhang is the inevitable consequence of that model. The solution is not more government bailouts. The solution is for developers to cut their prices, accept lower margins, and take responsibility for the products they built.

Developers themselves have admitted they are already accepting lower profit margins in response to rising construction costs, renegotiating contracts and delaying launches. But this is not a concession to buyers—it is a response to their own cost pressures. The real test is whether they will reduce margins to clear unsold stock, or whether they will continue to hold out for government intervention.

The Verdict: A Reckoning Long Overdue

Malaysia's property overhang is not a temporary market mismatch. It is a structural crisis caused by a developer-friendly policy environment that has allowed the industry to build recklessly, price greedily, and externalise risk onto buyers and taxpayers.

The evidence is overwhelming:

The path forward requires:

Mandatory Build-Then-Sell implementation to end the STB system's perverse risk allocation
Price reductions by developers to clear existing overhang, as advocated by industry insiders themselves
Supply discipline in over-supplied high-rise categories
Targeted demand-side support for the RM300,000 and below segment where genuine affordability is the constraint
Data collection reform to track homeownership by age and distinguish between genuine affordability barriers and preference shifts
An end to blanket Home Ownership Campaigns that artificially sustain prices and delay necessary market adjustments

The developers have had their day. They have profited handsomely. They have built what they wanted to build, priced it as high as the market would bear, and shifted every conceivable risk onto the buyers. Now, with RM37 billion in unsold stock sitting idle, it is time for them to take their medicine.

Reduce the prices. Accept the lower margins. Clear the inventory. And then, perhaps, learn to build what Malaysians actually need—homes that are well-located, financeable, and genuinely affordable.

The alternative is a cycle of new supply being added while existing homes continue to accumulate as overhang—a monument to developer greed and policy failure that will burden Malaysia's housing market for years to come.

References available upon request.

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The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official stance of Kritik.com.my. As an open platform, we welcome diverse perspectives, but the accuracy and integrity of contributed content remain the responsibility of the individual writer. Readers are encouraged to critically evaluate the information presented.