House Prices In Malaysia: Demand, Supply And Inflation Hedging Ability
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Date
2018-05
Authors
Yeap, Geok Peng
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
This study aims to examine house prices in Malaysia from three aspects which are housing demand, housing supply and housing returns over the sample period from 2000Q1 to 2015Q4. The empirical models are designed based on Autoregressive Distributed Lag (ARDL) approach. The results show that, on the demand side, house prices are mainly driven by population and quantity of housing stock, while economic factors such as income and interest rate appear to display a less significant role in determining long-run house prices in Malaysia. Government housing policy i.e. the real property gain tax appears to be ineffective in controlling house price appreciation. On the supply side, new housing supply can be explained by house price and construction cost. An increase in house price increases the quantity supplied of new houses but the magnitude is less than unity showing that new housing supply is price inelastic in Malaysia during the sample period. Among the four types of houses, supply of high-rise houses has the highest elasticity while supply of detached houses has the lowest elasticity. The findings imply that substantial rise in house prices in Malaysia could be due to inelastic supply of housing in the country. Thus, government should develop policies to accelerate the supply of new houses. Lastly, for investment aspect of housing market, effects of consumer price inflation and energy price inflation are used to examine the inflation hedging ability of housing returns. The results show that investment in Malaysian housing market is neither hedged against consumer price inflation nor energy price
inflation in the long-run. Only returns from detached houses show inflation hedging ability in the long-run while returns from terraced houses provides the ability to hedge against energy price inflation in the short-run.
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Keywords
House prices in Malaysia from three aspects , housing demand, housing supply and housing returns