By Datuk Mani Usilappan

The findings of the 2026 economic review are unequivocal: While Malaysia has rightfully earned its status as an Asean rising star, its property sector remains haunted by systemic fractures. These vulnerabilities, born of price engineering, cash-back schemes and opaque lending practices, threaten the stability of the RM1.2 trillion in outstanding property loans that underpin the national financial system. 

To protect this massive exposure and ensure the market’s long-term health, a fundamental normalisation of the industry is required. This transition demands a coordinated, forceful shift in policy, professional conduct and technological integration.

Strategy 1: Eradicating the indicative value trap

The current culture of verbal indicative values has devolved into a destructive bidding war that undermines the independence of the valuation profession. When a bank’s sales team persuades a valuer for a number before a formal inspection, the valuation is no longer an objective assessment but a sales tool.

To restore integrity, the banking sector must implement a structural firewall between sales and risk management.

• Conditional offers only: The industry must move toward a standard where Letters of Offer are issued strictly as conditional, subject to a final, written valuation report based on a physical inspection. This removes the indicative guesswork that leads to over-gearing.
• A no-bidding policy: Financial institutions must prohibit the practice of shopping for values among multiple panel firms to find the highest bidder. If a valuer provides a professional opinion that contradicts a bank’s internal sales target, it should be treated as a critical risk flag, not a reason for panel removal.
• Digital valuation logs: By implementing a centralised digital tracking system for all valuation requests, regulators can prevent valuation shopping. If one firm flags a property as overvalued, other firms on the panel would be alerted to the discrepancy, ensuring that a no from one professional cannot be bypassed by a yes from another.

Strategy 2: Strengthening oversight and transparency

The ugly practice of marking up prices relies entirely on a lack of transparency in public data. When rebates and furniture packages are hidden from the official record, the headline price becomes a lie that inflates the entire neighbourhood’s value. Bridging this information gap is essential for both investors and regulators.

• Shared red flag databases: There is an urgent need for a shared list of housing schemes and developments known for frequent cash-back and markup engineering. This should be a collaborative effort between the Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVAEP), Bank Negara Malaysia and major valuation firms. By flagging at-risk schemes early, the industry can act with collective prudence rather than individual greed.
• Auditing net transacted prices: Future regulatory updates should require the mandatory disclosure of all rebates, discounts, and cash-back amounts during the Stamp Duty declaration process at the Inland Revenue Board (LHDN). Public databases, such as those maintained by JPPH, should reflect the net price (the actual money that changed hands) rather than the inflated gross price found in the Sale and Purchase Agreement. This transparency would immediately deflate the artificial price bubbles currently being recorded as market growth.

Strategy 3: Enhancing estate agency supervision

With over 70,000 Real Estate Negotiators (RENs) currently active in the Malaysian market, the sheer volume of practitioners makes ethical oversight a significant challenge. The race to the bottom often results in marketing tactics that explicitly encourage financial subversion.

• Stricter REN accountability: Registered Estate Agents (REAs) must be held legally and financially responsible for the marketing tactics of their RENs. Advertising that explicitly promotes zero downpayment, cash-back or 100% mark-up loans should be met with the immediate suspension of the firm’s license. The message must be clear: the firm is the gatekeeper of ethics.
• Whistleblower mechanisms: Establishing a secure, anonymous channel for valuers and bankers to report engineered transactions directly to BOVAEP or the Malaysian Anti-Corruption Commission (MACC) would serve as a powerful deterrent. When the risk of exposure outweighs the commission from a marked-up deal, the practice will cease.

Strategy 4: Transitioning to the ability to pay and asset quality

Finally, the lending criteria in Malaysia must undergo a paradigm shift. We must move from a singular focus on collateral value to a holistic assessment of asset quality and repayment capacity. In a market where collateral values are suspect, the borrower's character and capacity become the only true safeguards.

• Rental yield benchmarking: For high-rise and investment properties, the Loan-to-Value (LTV) ratio should be directly influenced by the property’s potential to generate income. If a unit’s market rent cannot cover at least 70% of the mortgage payment (the Debt Service Coverage Ratio), the bank should automatically lower the LTV to reflect the higher risk of default. This prevents the speculative trap where buyers rely on capital appreciation that may never materialise.
• The Three Cs 2.0: Banks must return to the traditional Three Cs (Capacity, Collateral and Character) but with a focus on real-world, verified data. If the collateral value is identified as having a mark-up history in the red flag database, the capacity of the borrower must be verified with even greater scrutiny—looking at secondary income streams and historical savings patterns—to ensure the loan is not purely speculative.

Securing the 2026 momentum

Malaysia’s economic rebound in 2026 is a hard-earned achievement, driven by a growth surprise and a rising Asean profile. However, this momentum remains fragile if it is built on a foundation of inflated assets and artificial equity.

The strategy for the next half of the decade is clear: Normalisation. By eliminating the indicative value trap, auditing net prices and enforcing a zero-tolerance policy for professional misconduct, Malaysia can transition toward a Build-Then-Sell mentality where honesty is a competitive advantage.

For the property sector, the reward for this normalisation will be profound. We will move away from a market defined by ugly practices and toward a market that is a global gold standard for stability, trust, and sustainable wealth creation. The RM1.2 trillion shadow can only be dispelled by the light of transparency.

This commentary is the fourth of a 4-part series contributed by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS). Part 1, part 2 and part 3 are linked here. This article was first published in StarBiz 7.

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