By Yasmin Ramlan
SHAH ALAM, July 21 — As Malaysia grapples with a persistent oversupply of unsold homes and worsening affordability, experts are urging for a vacancy tax to encourage property owners and developers to make better use of idle units.
This policy, adopted in cities including Vancouver and Melbourne, aims to prevent vacant residential properties — often in anticipation of higher prices — by imposing financial penalties.
However, economists said a successful vacancy tax would require careful policy design, robust enforcement, and targeted exemptions to ensure it addresses Malaysia’s unique market dynamics without unfairly burdening homeowners.
Malaysia University of Science and Technology’s Prof Emeritus Barjoyai Bardai said any vacancy tax should target developers who build more units than market demands and leave them unsold while waiting for more favourable conditions, not homeowners with multiple properties.
He explained that many multi-property owners are not necessarily speculators, but may simply be unable to rent out their extra homes.
“They should not be taxed as it was not their intention in the first place to make profit, it is just the circumstances that make it difficult for them to rent, so this tax should be aimed at the developer,” he told Media Selangor.
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A visitor studies a replica of a houd at the Bpex House Expo at the Mid Valley Megamall Exhibition Centre in Kuala Lumpur on November 4, 2023. — Picture by AHMAD ZAKKI JILAN/SELANGORKINI[/caption]
In the short term, he said a vacancy tax on developers would place downward pressure on house prices, although the impact may be temporary as they adjust their strategies to minimise losses.
“For example, if there are 20,000 ready-for-sale units that remain unsold, this tax would compel developers to offload the properties, even if it means selling below market value, to avoid incurring the tax. That’s certainly good news for buyers.
“However, over the longer term, developers may begin to factor vacancy tax into their business strategies. When they plan to build more houses, they will consider both potential capital gains and rental rates.
“In doing so, developers might ultimately find ways to sustain or even increase their profits, such as by renting out surplus units before putting them up for sale,” he told Media Selangor, adding that unsold properties are a waste of resources and capacity.
On May 9, the Valuation and Property Services Department announced in its Property Market Report that Malaysia’s property transaction value fell 8.9 per cent in the first quarter (Q1) of 2025 to RM51.42 billion compared with Q1 last year.
It said transaction volume also declined by 6.2 per cent year-on-year, with 97,772 transactions recorded in Q1 2025 compared with 104,194 in 2024, despite significant construction activity growth in the residential property subsector.
Barjoyai said apart from the vacancy tax, an alternative to ease property overhang include incentives for developers to partially furnish homes and rent them out while waiting for the economic cycle to improve.
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Image for illustration purposes only. — Picture via UNSPLASH/MARIA ZIEGLER[/caption]
Clear definition of ‘vacancy’
Economist and Universiti Teknologi Petronas adjunct lecturer Samirul Ariff Othman suggested that local authorities implement the vacancy tax, which is more feasible, but he cautioned that it requires harmonisation between the powers granted under the Local Government Act 1976 and federal property regulations overseen by the Housing and Local Government Ministry.
He said local councils could leverage existing mechanisms like the assessment rate to impose a surcharge on vacant properties.
However, he said this would require amendments to bylaws with approval from the state government, as well as the integration of vacancy data by collaborating with agencies like Tenaga Nasional Bhd, Pengurusan Air Selangor Sdn Bhd, and the Inland Revenue Board.
“While federal endorsement improves legitimacy, a bottom-up model via local authorities, backed by state legislation, is administratively achievable,” he said.
Samirul added that among the key factors that could determine the success of a vacancy tax is a clear definition of “vacancy”, which should be based on objective criteria such as utility usage and minimum vacant duration, with exemptions provided for valid cases such as legal disputes.
Other factors include introducing the vacancy tax in phases to prevent market shocks and ensure it supports affordable housing, and practising data-driven enforcement.
He also noted that in the short-term, the vacancy tax could encourage property owners to rent out or sell idle units, easing supply pressures and stabilising rents, especially in areas with an oversupply.
“If targeted well and phased in, it would cool speculation, enhance market efficiency, and support equitable access to housing, especially in urban growth zones like Petaling Jaya, Subang Jaya, Shah Alam, and Cyberjaya,” said Samirul.
While there is a risk of backlash from developers and property owners, Samirul stressed that with proper communication and fair implementation, the vacancy tax could help improve housing affordability and promote healthier market dynamics.
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One of the apartments under the Skim Smart Sewa programme, situated along Jalan Kapar in Klang. — Picture by SELANGORKINI[/caption]
What should Selangor do?
Both Barjoyai and Samirul believe Selangor can take the lead in implementing a vacancy tax, with the state’s local councils playing a proactive role in addressing vacant property issues while balancing affordability concerns for home seekers.
Barjoyai said the state government could emulate international models, like the one in Vancouver, where the vacancy tax is implemented and collected by local authorities.
Samirul, meanwhile, said Selangor can either introduce a tax or create incentives to ensure properties are not left vacant.
“Selangor’s first pilot of a vacancy tax could serve as the vanguard for a new urban housing governance model in Malaysia. Implementation should start in overhang hotspots, with a graduated tax structure, robust definition of vacancy, and clearly defined exemptions.
“Global experience shows that with data-driven enforcement and transparency, such taxes can correct market imbalances without hurting long-term investor confidence.
“Parallel incentives like rebates, PPPs (public-private partnerships) and rent-to-own conversions can soften the landing and align the housing market with national equity and affordability goals,” Samirul said.
