Market observers are optimistic given the rental market's historical resilience in Malaysia, the post-pandemic economic recovery, and the strong recovery based on Juwai IQI's 2023 Malaysia Home Rental Index.
Malaysia may see an influx of long-term residents, occupiers of short-term rentals, and international students as international travel and inward tourist arrivals continue to rebound, which may also contribute to a higher demand for rental properties.
"This demographic trend, coupled with the local shift towards renting, provides fertile ground for investors to capitalise on the rising rental yields," said Juwai IQI co-founder and group chief executive officer Kashif Ansari.
"We believe the appetite for rental properties will grow and that rental yields may climb. Investors and landlords should monitor these emerging trends closely to make the most of the anticipated growth in Malaysia's rental sector," he said.
Although rents decreased by 1.2 per cent in Q4 2023 as compared to Q3 2023, they were still 5.5 per cent higher at the end of the year than they were in Q4 2022.
The Rental Index indicates that rates today are 7.4 per cent higher than they were at the height of the pandemic.
The 5.5 per cent national increase in 2023 was less than the increases in the Rental Index in Selangor and Kuala Lumpur.
In Malaysia, the average monthly rent for a residential property is RM1,975. In contrast, the average monthly rent is RM1,851 in Selangor and RM3,192 in Kuala Lumpur.
Kashif said there is a turn in the right direction, as the Rental Index hit its highest level since early 2020, almost three years ago.
According to him, the supply-demand balance, seasonal fluctuations, seasonal variations in the transaction mix, and investor activity are some of the factors affecting these trends.
The first index in Malaysia, the Rental Index, differs greatly by region. More than 58,000 residential rental transactions since 2018 have been analysed by the Rental Index.
The Rental Index is a tool for the government, business community, and consumers in the real estate market that highlights the importance of comprehending long-term rent trends. It is also meant to be used in conjunction with the Malaysia House Price Index from NAPIC.
It showed that Kuala Lumpur's rental rates ended 2023 at 28.4 per cent above Q4 2022, although still 29 per cent below pre-Covid levels.
The Selangor market was more stable, with rents ending 2023 10.7 per cent higher than Q4 2022 and 5.0 per cent higher than Q4 2019, suggesting a stable market with modest growth expectations.
Moving forward, a sustained rental rate increase is projected in high-yield urban centres such as Kuala Lumpur, Johor Bahru, and Iskander Puteri in Johor.
According to Kashif, more Malaysians may choose to rent since homeownership has become more costly due to rising interest rates.
He added that this might lead to competition and possibly higher rents.
"For investors, rising rental rates can offset the costs that come with higher interest rates. Our data partner, Global Property Guide, reports that the average gross rental yield in Malaysia is 5.16 per cent as of the second quarter.
"Investors can find the highest yields in Johor Bahru, Iskander Puteri, and Subang Jaya. Even the lowest yield is attractive by international standards, at 4.02 per cent in Georgetown.
"Note that yields are a calculation of gross income after expenses for property investors. The average gross rental yield in Johor Bahru is 6.23 per cent. The average gross rental yield is 5.67 per cent in Iskander Puteri and 5.41 per cent in Subang Jaya," he said.
