Housing Market

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Analyzing factors affecting demand and supply of residential housing in Malaysia. 1. Introduction
Owning a home for shelter and comfort is central to most families’ ultimate plans and also considered definition of personal success. In the past few years, property in Malaysia had raised dramatically between 20% and 80% both in the major urban cities or rural areas and depending on specific location. In Malaysia, since Nov 2010, the maximum loan- to- value ratio of 70% for the third and subsequent property has affected housing loan borrowings. The Malaysian housing market is highly competitive and these days. One of the main issues which is regularly being discussed and debated in the Malaysian housing industry is on the unsold, overhang and oversupply of housing development throughout the country. One of the identified reasons why the economy of the country suffered badly during the 1997 economic recession was due to overhang and oversupply in the housing property. Apart from that, there might be a risk that past mistakes would be repeated where developers build too many houses and causes oversupply. There will be a mismatch between supply and demand. In this case, we need to make full use of reliable housing data to analyze the demand and supply of residential houses before more construction going on. The housing market in Malaysia has been selected for this study as the recent economic slowdown has posted greater challenges to the developers. Likewise, general consumer sentiment towards the housing market is bullish. The housing market is dealt with a high involvement consumer product, which is highly priced, entailing a substantial financial to the buyer. However, housing industry still play an important role to the country’s economy in terms of employment, capital market, consumption and financial wealth thus stimulating the business cycle. On the contrary, prolong run- up in house price makes the local economy vulnerable to an economic slowdown and increasingly prone to financial instability and imbalance (Abraham & Hendershott 1996). Research had shown that house price movements are influenced by economic fundamentals, real income growth, affects household’s purchasing power and borrowing capacity, interest rate which affect cost of capital and payback capacity, stock prices which affects household’s wealth and investment alternatives, supply which affects availability and choice, and population growth which proxy for growth rate of household. High liquidity, higher costs of land , low interest rate and construction materials are some of the factors pushing up property prices in Malaysia. As housing is the quite important non- tradable asset, house price cycles across countries may be synchronized if the forces driving house price ( such as output, interest rate, consumption, wealth) tend to move in tandem across countries. Evidence shows that the house price in some countries, namely industrial countries where house price booms were synchronized, is a reflection of synchronization of monetary and financial liberalization, in addition to general business cycle linkages (Englund&Ioannides 1997). However, this article will not address any issues pertaining to the ongoing global financial crisis that is confronting major industrial countries and the rest of the world. It needs a separate paper as this crisis is considered unique, widespread and deep as it is still in the midst of uncertainty with most nations coming up with various stimulus packages to contain its erosive effect. An approach seeking to analyze the state of the housing market is by determining whether demand is financially sound by considering house prices relative to the borrowing and pay- back capacity of households, furthermore housing also has important impacts on the competitiveness of any locality’s economy (Quigley & Raphael 2004). If housing is expensive compared to other localities, firms will find difficulty to keep and recruit...
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