Developers balance expenses as buyers weigh affordability

KUALA LUMPUR, 6 OCTOBER 2026 —

KUALA LUMPUR — Rising housing delivery costs are emerging as a critical structural challenge for Malaysia’s property sector, with construction expenses averaging a 13 per cent increase in the first half of 2026, according to the Real Estate and Housing Developers' Association (Rehda).

This escalation is squeezing developer margins while simultaneously threatening to render already expensive homes even less accessible to buyers, creating a dual pressure point that industry leaders argue requires immediate policy intervention in the upcoming 2027 Budget.

The situation has moved beyond temporary market fluctuations to become a systemic concern, as input costs for materials, labour, and compliance continue to climb. For developers, the rising tide of expenses is forcing a difficult balancing act: absorbing costs to maintain competitiveness or passing them on to buyers, a move that risks further eroding affordability in a market already strained by high prices and limited purchasing power.

Rehda president Datuk Zaini Yusoff provided a detailed breakdown of the cost inflation, noting that earthworks and infrastructure costs had surged between 20 per cent and 30 per cent. In contrast, normal building works saw a more moderate rise of 3.0 to 5.0 per cent. These figures were corroborated by the association’s Property Industry Survey for the first half of 2026, which indicated that 81 per cent of 181 respondents reported higher business costs.

This represents a significant uptick from the 74 per cent who reported similar pressures in the second half of 2025, highlighting an accelerating trend in operational expenses across the sector.

Property consultant Samuel Tan described the current environment as a "difficult balancing act," particularly for developers operating in the affordable and mid-market segments. Tan noted that the continued escalation in construction, land, and compliance costs is forcing developers to become more selective about new launches. "The concern is that developers cannot simply absorb rising costs indefinitely, but passing the full increase on to buyers would further stretch affordability," Tan told Business Times.

He warned that this dynamic could lead to a contraction in new supply, especially in locations where selling prices are already constrained by local household income levels.

The drivers of this cost inflation are multifaceted, involving both domestic and global factors. In early 2026, the Ministry of Economy reported that the prices of seven key building materials had risen by an average of 12.59 per cent, a trend attributed to global supply chain disruptions and domestic fuel price adjustments. Zaini highlighted that higher diesel-related costs, including for bitumen, have particularly impacted road, earthworks, and infrastructure projects following the Middle East conflict.

While 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 region further disrupt global supply chains, Zaini offered a more measured outlook. He stated that prices have begun to stabilise after the initial shock, noting, "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."

Beyond materials, labour remains a significant pressure point. The Rehda survey found that 63 per cent of respondents faced construction challenges in the first half of 2026, with high material prices, supply shortages, and inconsistent supply cited as primary concerns. Labour costs and shortages were also prominent, with high wages, insufficient labour, and a lack of skilled workers identified as top challenges.

Zaini explained that while ongoing projects should generally be completed within existing budgets, contracts for new projects are likely to be priced slightly higher. He noted that standard contracts typically include a contingency of about three to five per cent to accommodate such cost increases, but this buffer is being tested by the scale of recent inflation.

In response to these pressures, Rehda is advocating for a comprehensive set of measures in the 2027 Budget designed to address both sides of the housing equation: lowering the cost of delivering homes and improving Malaysians' ability to finance their purchases. The association is proposing enhancements to the Housing Credit Guarantee Scheme to widen access to financing, particularly for young Malaysians, the self-employed, and those with non-traditional incomes.

Additionally, Rehda is seeking government-backed housing guarantees and stepped-up financing options that allow for lower repayments during the early years of home ownership.

On the fiscal front, Rehda is calling for the extension of stamp duty relief to residential properties priced above RM500,000 and up to RM1 million, implemented through a tiered mechanism for purchases in 2027. The association is also proposing a special Home Ownership Campaign (HOC) specifically for unsold completed homes that have obtained their Certificate of Completion and Compliance.

This initiative aims to clear the market overhang, improve liquidity, and allow capital tied up in completed units to be recycled into new developments.

The scale of the unsold inventory problem is significant. The Rehda survey revealed that 59 per cent of respondents had unsold completed residential units as at June 30. The reasons cited for this overhang include rejected end-financing applications, high property prices, and unreleased Bumiputera units. Zaini emphasized that affordability is not solely about the sticker price of a house; it is also about the ability to secure financing and cover upfront 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. He noted that 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.

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

To address the supply-side costs, Rehda is seeking incentives for construction technology and productivity, including the adoption of building information modelling, industrialised building systems, artificial intelligence, automation, and digitalisation. The association is also asking for accelerated capital allowances and investment tax allowances for qualifying technology investments. Furthermore, Rehda advocates for greater use of data-driven housing planning to align future supply with actual demand and measures to accelerate green and sustainable housing development.

Tan echoed this sentiment, stating that 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," Tan said.

Looking ahead, Rehda expects buyer caution to continue into the first half of 2027, particularly amid ongoing geopolitical uncertainty. However, the association maintains that demand for housing will remain robust across affordable, middle-income, and higher-end segments. The critical question for the 2027 Budget, therefore, is whether the government can successfully address both ends of the equation: making homes cheaper to build and making them easier to buy.

Zaini concluded that 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.

Related: Real Estate and Housing Developers' Association (Rehda) · Ministry of Economy · Datuk Zaini Yusoff · Kuala Lumpur