Is Malaysia Facing a Housing Oversupply Problem?

Lately, I keep seeing people say the same thing about Malaysia’s property market:

“Too many condos.”

“Nobody is buying.”

“Oversupply is getting worse.”

And honestly, when you look at the numbers, it does sound worrying at first.

As of mid-2025, Malaysia has more than 26,000 completed residential units sitting unsold, worth over RM16 billion altogether. That is not a small number by any means.

But the more I look into the data and observe what is happening in the market, the more I feel the problem is not as simple as “we built too many homes.”

Because at the same time these units remain unsold, many Malaysians are still struggling to buy property.

Young buyers are having trouble getting loans approved.

Some affordable projects are located too far from workplaces or public transport.

Meanwhile, developers in certain areas are still launching premium high-rise projects because that is where margins are stronger.

So the issue starts to look less like a true oversupply crisis and more like a mismatch between supply and actual demand.

We are building homes.

But are we building the right homes?

At the right prices?

In the right locations?

For the buyers who genuinely need them?

That is the real conversation the industry needs to have.

In this article, I want to take a closer look at what the latest 2025 housing overhang data is actually telling us, where the biggest pressure points are, why certain homes remain unsold, and whether Malaysia is truly facing a housing oversupply crisis or simply a housing market that has become increasingly disconnected from real buyer demand.

The Numbers at a Glance

Let’s start with the headline figure. As of mid-2025, Malaysia recorded about 26,911 unsold completed residential units worth RM16.4 billion.

If that makes you nervous, I get it. But here’s some context that often gets left out: we’ve had worse numbers before. Back around 2018 to 2019, the overhang peaked at over 30,000 units. So what we’re seeing now is actually below that level. In fact, the numbers had been improving for several quarters before they started creeping up again recently.

So yes, overhang is rising. But no, we’re not yet in crisis territory.

What’s more interesting and more revealing  is how uneven demand has become.

You’ve got well-located landed homes and transit-linked developments that are still selling nicely. Meanwhile, certain high-rise projects can’t find buyers even after they’ve been completed for months.

That tells me the problem isn’t that people have stopped wanting to buy homes. It’s that they’ve become incredibly selective. Banks are stricter. Buyers are doing their homework. And any project that feels overpriced or poorly located is getting ignored.

So when I look at the rising overhang numbers, I don’t see a market about to collapse. I see a warning sign, a growing disconnect between what’s being supplied and what people actually want to buy.

Where Is the Oversupply?

This is important: the oversupply isn’t everywhere. It’s clustered in specific property types, price ranges, and states.

By Property Type

High-rise units: condos and serviced apartments make up about 58.5% of unsold completed homes. That’s more than half.

A lot of these were launched during the boom years when developers were chasing investor money. Now that investors have cooled off and banks are tighter with loans, those same units are sitting empty.

By Price Range

Here’s something that surprised me. Oversupply is no longer just a luxury problem. More unsold units are now showing up in the RM300,001 to RM400,000 range, the segment we usually call “affordable.”

That suggests the issue isn’t just about high price tags. It’s about whether buyers can realistically get a loan and keep up with monthly payments, even for a home that looks affordable on paper.

By Location

No prizes for guessing this one. Klang Valley, Johor, and Penang still have the highest number of unsold units.

These are exactly the places that saw the most aggressive development over the past several years. In some specific pockets, supply simply grew faster than the number of people actually looking to live there.

Why Aren’t These Homes Selling?

It’s tempting to say “because they’re too expensive,” but that’s only part of the story. Let me break down what’s really happening.

Banks Are Rejecting Too Many Loans

Loan rejection rates are still high, especially among younger and middle-income buyers. Between rising living costs and stricter debt service requirements, a lot of people who genuinely want to buy simply can’t get the green light from the bank.

Prices Don’t Match Borrowing Capacity

A home might look affordable at RM400,000. But after interest, the monthly installment can still be too heavy for a typical household. Developers price based on land costs, construction, and their own margins. But buyers are limited by what banks are willing to lend. Those two numbers don’t always meet in the middle.

Affordable Homes Are Sometimes in the Wrong Locations

I’ve seen this happen too many times. A developer builds an “affordable” project but it’s miles away from any MRT station, far from workplaces, and surrounded by nothing much. The lower price gets eaten up by higher commuting costs, more time stuck in traffic, and fewer daily conveniences. Buyers today care about connectivity and lifestyle more than ever. A cheap home in a bad location isn’t really a bargain.

Developers Have Become More Cautious

This one is actually a silver lining. Slower sales and rising overhang have shaken up the industry. Many developers are now launching fewer units, delaying projects, or using phased releases instead of dumping everything onto the market at once. The market today is far more selective than it was during previous property cycles.

Are Developers Responding?

Yes..  but maybe not as quickly as some would like.

Compared to a few years ago, developers are clearly more cautious. You don’t see as many massive, aggressive project launches anymore. Instead, many are releasing units in phases, watching how fast they sell, and only scaling up if demand is real. That’s a healthy change.

Project strategies are also evolving. Rather than just chasing volume, more developers are now focusing on:

• smaller unit counts,
• better location planning,
• stronger connectivity to transit and amenities,
• and products designed for genuine owner-occupiers, not flippers or speculators.

But here’s the contradiction. Despite all the talk about affordability, more than a quarter of newly launched residential units are still priced above RM1 million.

I understand why. Land is expensive in urban areas. Construction costs keep rising. Premium projects offer better profit margins. From a business perspective, it makes sense.

But it also highlights the disconnect I mentioned earlier. The strongest demand is in the affordable and mid-market segments. Yet a significant chunk of new supply is still aimed at higher-income buyers.

So for now, most developers aren’t panicking. But they’re not being aggressive either. The best way to describe the current mood is cautious adaptation. Adjusting launch strategies, keeping a close eye on buyer sentiment, and becoming more selective about what gets built next.

Expert View: Crisis or Mismatch?

Most industry experts I’ve read and spoken to agree on the same thing: this is not a full-blown property crisis. But it is a market that’s becoming increasingly mismatched.

TA Securities describes the current overhang level as “not alarming,” pointing out that developers today are far more disciplined than they were in previous cycles. Slower, more cautious launches have helped prevent a larger structural oversupply problem from forming.

REHDA has maintained a cautiously optimistic outlook. Their take? Buyer interest still exists. But financing remains one of the biggest barriers preventing transactions from actually happening.

That’s an important distinction. The problem isn’t a lack of demand. It’s the gap between what buyers want, what they can afford, and what banks are willing to approve.

FIABCI Malaysia has repeatedly made a point I strongly agree with: simply building more homes will not solve the problem. The real focus should be on building the right units in the right locations. A poorly located “affordable” home may still struggle to attract buyers if connectivity, accessibility, and daily convenience are weak.

The government, through KPKT, has also maintained that the overall housing market remains stable. Their current efforts are increasingly focused on improving alignment between future supply and genuine market demand, rather than purely increasing housing volume.

So when you put it all together, the message from the industry is pretty consistent: Malaysia is not facing a collapse in housing demand. Instead, the market is going through a correction phase where buyers are more selective, financing is tighter, and projects that fail to meet real market needs are finding it harder to survive.

Outlook for 2026

Looking ahead, most signs point to a market that is stable but still adjusting.

Developers generally expect 2026 to be a year of cautious recovery rather than strong expansion. Sentiment is improving compared to the immediate post-pandemic period, but it’s still far from the aggressive growth cycles Malaysia saw in the past.

In other words, the market isn’t falling apart but it’s also not running hot.

One of the biggest factors will be financing. If loan approval rates improve, we could see a faster absorption of existing unsold stock, especially in the mid-range and affordable segments. But if financing conditions remain tight, overhang levels may continue to build gradually, even if demand exists on paper.

Another key factor is location alignment. Future demand is expected to remain strong for:

• transit-oriented developments (TODs),
• suburban areas with improving infrastructure,
• and mature townships with established amenities.

Buyers today are prioritising lifestyle convenience more than ever, not just price per square foot.