KUALA LUMPUR (Nov 10): Housing loan approval rates in Malaysia fell to 38.36% in September 2026, down from the 40% to 41% baseline maintained between 2022 and 2025, as banks become increasingly selective in assessing housing loan applications.
According to real estate services firm JLL Malaysia, the moderation in approval rates stems from heightened bank scrutiny over income documentation, inflated sale and purchase agreement (SPA) prices, and rising service apartment vacancy risks.
JLL Malaysia managing director Jamie Tan noted that overall approval figures for the full year are expected to remain muted as lenders tighten underwriting criteria.
"I think by the end of the year, we will have a number that is lower than in previous years. Reason being, banks are more selective of who they approve and for which location and project. They're becoming wiser and very selective. At the same time, you have buyers without strong credit-worthiness," Jamie said during JLL's 4Q2026 property market briefing on Tuesday.
JLL Malaysia executive director and head of retail valuations Jeannie Tan also raised concerns over "cash-out" arrangements, where the SPA price of a property is set above its assessed market value to obtain higher financing from banks.
"People are coming up with innovative ways to cash out. The SPA price is inflated, but valuers are assessing properties at much lower, more realistic levels. Banks are becoming very cautious when dealing with cash-out buyers. Individuals without pay slips sometimes try to inflate the purchase price to obtain higher financing," she explained.
She noted that panel valuers appointed by banks are actively flagging these price discrepancies.
"Many people — and even some banks — are not fully aware of these practices, so raising awareness is important. Cashing out to get extra funds from a property purchase is ultimately detrimental. Getting extra cash doesn't [relieve buyers] of their obligations; they still need to pay back the loan," she added.
Jeannie added that banks are exercising caution over high-density service apartments, particularly within the Kuala Lumpur City Centre, where developments were predominantly built for foreign buyers.
"In addition, a lot of developers are building serviced apartments in the Kuala Lumpur city centre specifically for foreign buyers, and that is where the core issue lies. When expensive, premium-priced units are targeted primarily at foreign purchasers, high vacancy rates often follow," she said.
"When occupancy drops, property owners frequently turn to short-term rentals like Airbnb, which remain largely unregulated in certain parts of KL. Consequently, banks become exceptionally cautious with lending. High reliance on short-term rentals indicates a lack of long-term tenants and stable occupancy, which impacts the overall credibility of these developments."
Jamie emphasised that because the residential sector accounts for roughly 62% of Malaysia's overall real estate market, failure to control overbuilding could trigger long-term market instability.
"Moving forward into 2027, a main concern is the risk of an uncontrolled residential market leading to severe supply imbalances in certain areas. Because if you look at all the other economies, it always happens in the residential market."
As seen in other economies such as China, which is still grappling with the fallout of its residential property downturn, residential market instability can have long-lasting effects," he cautioned.
Compounding residential headwinds are market expectations of potential interest rate hikes by Bank Negara Malaysia (BNM) heading into 2027.
"There have been talks that BNM might increase the OPR [overnight policy rate] in 2027. We are not certain that it will happen. But whenever the interest rate increases, it more or less impacts the residential market as well as the overall real estate market, as buyers rely heavily on housing loans and mortgages," Jamie said.