Income-based housing model proposed to replace RM300,000 cap

KUALA LUMPUR: Malaysia should move away from its RM300,000 affordable housing benchmark and adopt a more locally tailored affordability framework, similar to Singapore's Housing and Development Board (HDB) model, to better address structural mismatches in the property market, experts said.

They argue that the current price-based threshold is increasingly out of step with household income levels, financing capacity and regional cost variations, contributing to a build-up of unsold stock even in the so-called affordable segment.

Instead of a fixed price ceiling, Malaysia should adopt a more dynamic affordability formula that takes into account median income, debt servicing ratios and location-specific cost structures, similar to the Singapore model where public housing pricing is closely aligned with household income profiles and long-term financing frameworks.

Such an approach could help improve demand alignment, reduce property overhang and ensure that new housing supply better matches actual purchasing power across different income groups and regions.

The recommendation comes amid a persistent overhang in Malaysia's lower-priced housing segment, where a significant number of units priced below RM300,000 remain unsold, according to data from the National Property Information Centre (Napic).

Napic data showed that 14,201 completed residential units worth RM2.77 billion remained unsold as of the first quarter of this year. These accounted for 43.3 per cent of the country's total property overhang, with the bulk of the unsold units located in the Klang Valley, Johor and Perak.

Juwai IQI co-founder and group chief executive officer Kashif Ansari said the data points to a clear mismatch between housing supply and market demand.

More than half of all unsold homes have been on the market for at least six years, even as hundreds of thousands of homes continued to be purchased annually over the same period, he added.

"This indicates that the issue is less about overall affordability or financing and more about the specific characteristics, location, pricing, or appeal of certain properties.

"While discounts, financing support, or incentives may help improve buyer interest, long-unsold properties often face challenges tied to the homes themselves rather than a lack of willing buyers," Kashif told Business Times.

Universiti Teknologi Malaysia associate professor in property economics Dr Muhammad Najib Razali said homes priced below RM300,000 remain unsold because being "cheap by price band" does not necessarily mean they are "affordable by income capacity".

He said that while the unsold homes may be below the policy ceiling, it can still exceed the sustainable borrowing capacity of many Malaysian households.

This is particularly after factoring in transportation costs, maintenance expenses, down payment requirements and loan eligibility constraints.

"RM300,000 is only partly affordable for Malaysian buyers. While it falls within the government's "affordable housing" category, actual affordability depends on household income, financing capacity and living costs.

"Malaysia's median household income is about RM7,017 per month, or roughly RM84,000 annually.

"A widely used affordability benchmark suggests that a house should cost no more than about three times a household's annual income," he said.

Najib said that based on this measure, the affordable housing price for a median Malaysian household is about RM253,000, meaning a RM300,000 home exceeds the conventional affordability threshold by roughly RM47,000.

Najib said Singapore's HDB model ties housing eligibility, grants and access to household income ceilings and buyer profiles, instead of relying on a single universal price benchmark.

He added that income ceilings are set according to project and household type, while Central Provident Fund housing grants are also adjusted based on income levels.

"Malaysia could adapt this by setting affordable prices at the district level; for example, housing costs should not exceed about 30 per cent of local household income after allowing for transport and maintenance," he said.

He also suggested that the government should use public land more strategically, noting that Singapore's relative success is not only driven by grants but also by state-led land assembly, long leasehold tenures, integrated town planning, and proximity to transport, schools and employment centres.

Najib said Malaysia could similarly leverage federal and state land near MRT, LRT, KTM and bus corridors for housing development while introducing resale restrictions, owner-occupation requirements and other anti-speculation measures.

Kashif said that to address unsold homes, proposals include improving liveability and connectivity to make the units more attractive to buyers, or converting them for alternative uses.

He said introducing mini-bus routes to affordable housing areas with weak public transport links allows residents to better access workplaces and schools.

"Probably more important is making sure that future affordable homes are built where the people who need them will buy them. This is also being done.

"The government is emphasising transit-orientated development, which means building homes near mass transit hubs. It's no good having an affordable home if you can't get from there to your job," he said.

Kashif said the industry believes the 30 per cent quota could be adjusted to place greater emphasis on housing data in guiding new supply, ensuring developments are aligned with actual local demand.

Najib said the definition of "affordable housing" may need to be revised, noting that a single RM300,000 benchmark is analytically weak because income levels, cost of living, transport dependency and employment opportunities vary significantly across different regions.

He added that a price considered affordable in one area may be financially unrealistic in another, such as between Kuala Lumpur, Selangor, Kelantan, Sabah and secondary towns.

"The current approach assumes that affordability is determined mainly by the selling price. In reality, affordability depends on whether households can still maintain a reasonable standard of living after paying for housing," he said.

Najib said affordable housing should be determined based on the income households have left after covering essential expenses such as food, transport, childcare, utilities and existing debts.

He added that this approach could be simplified into a practical policy framework, where housing affordability is adjusted according to local economic conditions rather than a single nationwide price ceiling.