Is Malaysia’s Real Estate a Good Investment During Times of Inflation?

Inflation — it's a term we hear often when people talk about the economy. But what does it actually mean for you, and how can real estate investing be an effective way to hedge against it?

What is inflation?

In simple terms, inflation is a general increase in prices and a fall in the purchasing value of money. When inflation rises, the value of your money goes down — you need more money to buy the same items. Essentially, your money doesn't go as far as it used to.

If you had RM100 saved in the bank a year ago, it won't buy as much today. You've likely felt this firsthand — noticing how expensive everyday items have become in recent years, while wages certainly haven't kept up.

A real-world example: the price of nasi lemak over time. A packet of nasi lemak that cost RM2.03 in 2011 now costs RM3.68 in 2024 — that's an 81% jump.

How is inflation measured?

Economists use the Consumer Price Index (CPI) as the primary measure to track inflation. This index measures the average change in prices for a "basket" of goods and services over time.

In Malaysia, the Department of Statistics Malaysia (DOSM) tracks the prices of 552 items across categories like food, housing, and transport. They collect prices from roughly 22,000 retail outlets nationwide — weekly for items like vegetables, monthly for clothing, and quarterly for rents.

The Malaysian inflation crisis

So what causes inflation? Over the past two decades, several major events have shaped Malaysia's inflation story — global financial shocks, political transitions, the pandemic, and subsidy reforms.

One major issue is that Malaysia relies heavily on imports. We import over RM78.8 billion worth of food annually — beef, mutton, and even chilli. When global food prices rise or the ringgit weakens, we can't fully insulate ourselves from higher costs.

The ringgit has been on a rollercoaster — weakening from RM3.16 per USD in 2008 to a record low of RM4.77 in February 2024. Every time the ringgit drops, imported goods become more expensive — from the cooking oil at your local kedai runcit to the petrol you pump at the station.

When global events like the Ukraine war or pandemic supply chain disruptions hit, the shortage of supply drives up prices that Malaysia has no buffer against. That's how high inflation gets imported into the local economy.

How does inflation affect real estate?

Housing price growth

Real estate prices in Malaysia have increased significantly over the last 25 years. Why? In the 21st century, a growing number of people are earning enough to buy property — but the land available to build on hasn't changed.

Real estate is a notoriously slow business. Houses take months to build, and once people own one, they rarely move. With sky-high demand and supply unable to keep up, a housing shortage has pushed both demand and prices upward.

Inflation also drives up the prices of all commodities, including the raw materials needed for construction. As the cost of cement and steel rises, so does the expense of building new homes — a cost typically passed on to buyers.

House prices vs. inflation

Malaysian housing prices have generally performed better than inflation in the long run, despite short-term fluctuations. The market has experienced notable dips — most in 2008 (the global financial crisis) and during 2020–2021 (COVID-19, when Movement Control Orders severely restricted economic activity).

Apart from those significant downturns, the real estate market has consistently matched or exceeded inflation, with a peak difference of over 14% in December 2012.

As of late 2024, housing prices bounced back, rising above inflation by 1.5%. After a downcycle that began in late 2022, the market is showing signs of renewed growth. Those who invested during the dip are now seeing the early rewards of market recovery.

If you had purchased a property during the 2008 financial crisis in March 2009, average house prices have since increased from roughly RM230,000 to RM494,000 — approximately 4.3% annualised return on your investment. That means real estate prices have outperformed inflation by an average of 2.2% per year since 2009.

Rental income

A standout feature of real estate is rental income. When a tenant agrees to rent your property at a fixed rate, it provides an assured, passive income stream that isn't readily available from most other investment types.

When inflation rises, the rental market tends to follow — but with a noticeable lag, because of fixed lease agreements. If inflation suddenly spikes, landlords can't raise rent instantly. However, within a one-to-three-year period, you typically see rental adjustments based on market conditions.

From 2011 to 2024, rental prices have generally kept pace with or exceeded inflation. Rental yields in Malaysia currently range from 3–6%, providing property investors with steady income that helps offset inflation's impact.

How can real estate protect you from inflation?

Let's compare two scenarios: investing RM100 in real estate versus leaving it in a bank savings account back in the year 2000.

For a Malaysian property investment, the capital value would have increased to roughly RM337 based on house price growth of 237% since 2000. Add rental income averaging 3.5% per year over 25 years, and total returns push the value significantly higher — potentially RM750–920 depending on rental yield and reinvestment.

If you had simply saved that money in a conventional savings account earning around 0.75% annually, your RM100 would still be RM100 in nominal terms. But due to cumulative inflation of 70% since 2000, that RM100 now has the purchasing power of only RM59 in year-2000 money. A loss of about 41% of its real value.

For Malaysia's Muslim majority, the challenge is even more pronounced. Islamic savings accounts can't use conventional interest, so even Islamic fixed deposits — which are halal but typically offer returns of 2.5–3.8% — struggle to keep pace with inflation during price spikes.

This is why growing your wealth matters more than simply saving it. The money you worked hard for 25 years ago has lost much of its value today. Without investing it, you're losing ground — not holding it.

Other benefits of real estate

Tangible asset. Unlike most financial assets, real estate has inherent, physical value. Housing is used by people to eat, sleep, pray, and live — so it will always hold value regardless of market conditions. In times of economic instability, real estate is often one of the few asset classes not drastically affected.

Diversification. Real estate moves differently from stocks and other investments, making it a great way to reduce overall portfolio risk. Especially during inflation, equities and financial instruments are likely to fall in value, unlike property.

Tangible improvements. Unlike stocks, housing can be actively improved. Renovations and refurbishments can increase property value by an additional 15–30% depending on the nature of the upgrades.

Why Wahed?

We strive to acquire properties at below-market prices with the help of our network of real estate specialists. By doing this, we aim to ensure that your investment carries a built-in cushion against potential downturns or inflation.

For example, for a property with a market value of RM500,000, Wahed might secure it for RM450,000. Even in the rare event of inflation rising by up to 8% or the real estate market dropping by 5%, the discount cushion could mean your investment is protected. It's not a guarantee — but it does offer meaningful protection in fluctuating economic conditions.