Developers juggle costs, buyers count the cost

KUALA LUMPUR: Rising housing delivery costs are emerging as a growing concern for Malaysia's property sector, putting pressure on developers' margins while threatening to make already expensive homes even less affordable for buyers.

Construction costs have risen by an average of 13 per cent in the first half of 2026, the Real Estate and Housing Developers' Association (Rehda) Malaysia said.

Rehda president Datuk Zaini Yusoff said that the costs of earthworks and infrastructure had increased between 20 per cent and 30 per cent, while normal building works rose by 3.0 to 5.0 per cent.

The association's Property Industry Survey for 1H 2026 showed that 81 per cent of 181 respondents reported higher business costs, compared with 74 per cent in the second half of 2025.

Property consultant Samuel Tan said the continued escalation in construction, land and compliance costs was creating a difficult balancing act for developers, particularly in the affordable and mid-market segments.

"The concern is that developers cannot simply absorb rising costs indefinitely, but passing the full increase on to buyers would further stretch affordability," he told Business Times.

Tan said this could result in developers becoming more selective over new launches, especially in locations where selling prices were already constrained by household income levels.

He said the government should consider measures in the 2027 budget that reduce the cost of housing delivery, including streamlining approval processes, reviewing development-related charges and encouraging more cost-efficient construction methods.

"Ultimately, the issue is not just how much it costs to build a house, but whether the final price remains within the purchasing power of Malaysians," he said.

Tan said a more coordinated approach was needed to prevent rising development costs from widening the gap between what homes cost to build and what buyers could realistically afford.

Against this backdrop, Rehda is calling for the 2027 Budget measures to address both sides of the housing equation, that is, lowering the cost of delivering homes while improving Malaysians' ability to finance their purchases.

WHY HOMES ARE GETTING MORE EXPENSIVE

Construction cost inflation in Malaysia is emerging as a broader industry concern, with rising input costs putting pressure not only on developers but also on housing affordability.

In early 2026, the Ministry of Economy said the prices of seven key building materials had risen by an average of 12.59 per cent, amid global supply chain disruptions and domestic fuel price adjustments.

Analysts from Universiti Teknologi MARA (UiTM) have warned that construction costs could surge by as much as 40 per cent if prolonged tensions in the Middle East further disrupt global supply chains.

Zaini said higher infrastructure, utility, statutory, regulatory and compliance costs are adding to the cost of developing housing.

Construction material prices have also been affected by higher diesel-related costs, including bitumen, following the Middle East conflict, which particularly affected road, earthworks and infrastructure projects.

The survey by Rehda found that 63 per cent of respondents faced construction challenges in 1H 2026, with high material prices, supply shortages and inconsistent supply among the main concerns.

Labour costs and shortages are another pressure point, with high wages, insufficient labour and a lack of skilled workers cited as the top challenges.

Zaini said ongoing projects should generally be able to be completed within their existing budgets, while contracts for new projects could be priced slightly higher to account for increased costs.

He said contracts would typically have a contingency of about three to five per cent to accommodate cost increases.

Despite the Middle East conflict, Zaini does not expect another significant jump in construction material prices as prices have begun to stabilise following the initial increase.

"Prices went up significantly due to the Middle East crisis. Now, you can see that prices have already stabilised. Although the war continues, I do not really expect such a big jump in construction material prices because currently they have already absorbed the first tranche of higher prices," he told the media recently.

SO WHAT DOES REHDA WANT?

Rehda is proposing several measures under Budget 2027.

They include enhancing the Housing Credit Guarantee Scheme to widen access to financing, particularly for young Malaysians, the self-employed and those with non-traditional incomes, government-backed housing guarantees and stepped-up financing, allowing lower repayments during the early years of home ownership.

Rehda is also seeking to extend stamp duty relief to residential properties priced above RM500,000 and up to RM1 million, with a tiered mechanism for purchases in 2027, and a special Home Ownership Campaign (HOC) for unsold completed homes that have obtained their Certificate of Completion and Compliance.

The association is also seeking incentives for construction technology and productivity, including building information modelling, industrialised building system, artificial intelligence, automation and digitalisation.

Additionally, Rehda is asking for accelerated capital allowances and investment tax allowances for qualifying technology investments, greater use of data-driven housing planning to align future supply with actual demand, and measures to accelerate green and sustainable housing development.

WHY FINANCING IS A BIG ISSUE

Rehda says affordability is not simply about the price of a house. Buyers also need to be able to secure financing and cover upfront costs.

Zaini said many prospective buyers, particularly those in the B40 group, may have the capacity to service monthly instalments but struggle to accumulate savings for the 10 per cent down payment, stamp duty and other acquisition costs.

"Access to housing financing remains a major barrier to house ownership, particularly for young Malaysians, the self-employed and purchasers with low or non-traditional incomes," Zaini said.

"Normally, coming up with that 10 per cent is difficult for them. So, we are asking the government to help on this," he said.

WHAT ABOUT UNSOLD HOMES?

Rehda is also seeking to tackle completed homes that remain unsold.

Its survey found that 59 per cent of respondents had unsold completed residential units as at June 30, with rejected end-financing applications, high property prices and unreleased Bumiputera units among the reasons cited.

Rehda believes a targeted HOC could help clear the overhang, improve market liquidity and allow capital tied up in completed units to be recycled into new developments.

WILL HOUSING COSTS FALL?

That remains dependent on how far development costs can be reduced.

Zaini said lowering the cost of housing delivery could eventually give developers more room to reduce selling prices.

"Housing affordability is influenced not only by purchasers' access to financing but also by the cost of developing and delivering homes.

"We are asking the government to look at these costs again. Once these are reduced, developers can also reduce prices significantly," he said.

For buyers, Rehda expects caution to continue into the first half of 2027, particularly amid geopolitical uncertainty. But it said demand for housing would remain across affordable, middle-income and higher-end segments.

The bigger issue for the 2027 budget, therefore, is whether the government can address both ends of the equation: making homes cheaper to build and making them easier to buy.