Housing prices in peninsular Malaysia: supported by income, foreign inflow or speculation?

Abstract

Purpose This paper is motivated by a concern about the ability of the average Malaysian income to catch up with the rapidly increasing house prices in Peninsular Malaysia. Financial innovation in financial system now regards houses as a financial asset and speculation vehicle. Therefore, a house purchase is made to acquire not merely a necessity but also a financial asset which can generate future returns. Given the problems in the housing market, this paper aims to examine the determinants of house prices in Malaysia, including those such as income, population, foreign inflow and speculation. Design/methodology/approach This study adopts panel data analyses, namely, the fixed effect model (FEM) and the pooled mean group (PMG), and uses data at state level in quarterly frequency, spanning from 2005Q1 to 2013Q4. Findings Based on the results of FEM, these determinants influence house prices significantly. Moreover, the PMG results suggest that there is convergence in the model, which are indicated by the significant and negative sign of the error correction term. In conclusion, the rapidly increasing house price is not caused by speculation activities in the housing market. More precisely, Malaysian income is capable of catching up with the increasing house prices. Practical implications As income remains to be one of the major drivers in influencing Malaysian house price, Malaysian Government shall continue the policies of supply low cost houses to the low-income groups and My First Home Scheme (SRP) by offering less stringent rules in applying house loan for the first-time house buyers. Originality/value This study used the actual data of foreign housing purchase obtained from Malaysia Valuation and Property Services Department to represent foreign inflow; therefore, the results will reflect the impact of foreign inflow in a better manner.

House prices and bank credit in China: analysis of first- and second-tier cities

“…For instance, when per capita GDP grew by 1%, house prices in second-tier cities rose by 0.32%. This finding is also supported by Nyakabawo et al (2015), Ligita and Rita (2016) and Wong et al (2019) in which an increase in GDP exerts a positive effect on house prices.…”

“…Likewise, population size has a significant effect on house prices. Here, Wong et al (2019) found that the larger the population size, the higher the demand for property. In other words, the demand for housing will rise as the population size increases.…”

“…Nevertheless, real estate is closely related to the national economy, given that the high economic growth rate and quality of economic growth are prerequisites leading to the development of the real estate market. Nyakabawo et al (2015), Ligita and Rita (2016) and Wong et al (2019) demonstrated that an increase in the gross domestic product (GDP) exerts a positive effect on house prices, while Kok et al (2018) found that real GDP is the primary source of house price changes in Malaysia. Similarly, Christiansen et al (2019) and Salvati and Ciommi (2019) suggested that rising house prices during periods of economic expansion occur while then falling during times of deep recession.…”

Modeling of residential property rents in Somalia using two-stage modeling

“…This is acceptable because the behavior of housing prices can be explained by market fundamentals (Al-Masum and Lee, 2019). Wong et al (2019) investigated the ability of ordinary Malaysians, with average household income, to catch up with the rapidly growing house prices. The study xxx found no evidence for the existence of a causal relationship between speculation and the rapidly increasing house values in Malaysia.…”

The Impact of Macroeconomic Factors on the House Prices during Liberalisation

“…There is an increasing number of studies on macroeconomic determinants of house prices in Malaysia that include interest rates as a variable (see inter alia, Pinjaman & Kogid 2020;Wong, Lee & Koong 2019;Loh et al 2019). The common motivation for these studies is the concern about home price ballooning, which causes problems of affordability among locals.…”