Macroeconomic Factor Affecting Property Price in Malaysia

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MASTER OF BUSINESS ADMINISTRATION

SEPTEMBER 2016/2017

OWFM 6013 CORPORATE FINANCE

LECTURER: PROF MADYA DR. ZAHIRUDDIN GHAZALI

INDIVIDUAL CONCEPTUAL PAPER

MACROECONOMIC FACTORS AFFECTING PROPERTY PRICE IN MALAYSIA

TAN YEE LEE                                                        822052

Table of Contents

1.0 Introduction        1

2.0 Background        2

3.0 Problem Statement        3

4.0 Literature review        5

4.1 Gross Domestic Product        5

4.2 Interest rate        5

4.3 Inflation rate        5

4.4 Interest rate        6

4.5 Unemployment        6

5.0 References        7

1.0 Introduction

Almost every families in Malaysia plan to own their property, either landed or high rise. However, there is a huge gap between property prices and household income in Malaysia due to the employment income increased much slower as compared to the increase of property prices. Many people prefer to invest on property as they believed that invest on property can speculate in prices and property is a tangible investment, bricks and mortar.

Property market played an important role in a nation’s economy. Malaysia as a developing country, construction is crucial as it represent development of a country. According to Xing (as cited in Amel, 2013), other sectors are sensitive to the changes in the construction industry. Therefore, construction industry is important to the overall economy of a country.

Property price is very much depends on supply and demand of property market and the economy. Hence, property industry and overall economy of a country are interdependent. It is important to understand macroeconomic factors that affecting the property price in order to well manage the overall economy (Pillaiyan, 2015).Based on Gross Domestic Product 2016 published by Department of Statistics Malaysia, construction sector contributed 4.5% to the GDP of Malaysia.

2.0 Background

Property market in Malaysia performed aggressively in the early of 1990s until 1997 Asian Financial Crisis. According to the Valuation and Property Services Department, it showed that property transaction during 1998 after Asian Financial Crisis was reduced by 32.3% as compared to 1997, which equal to 47.6% reduction in value of transaction.

House price in Malaysia slumped by 9.4% after Asian Financial Crisis hit Malaysia in 1998 as reported by National Property Information Centre (NAPIC). Market did not recover and house price continue to decline further by another 2.3% in the subsequent year. In 2000, slightly recovery in house price and recorded 4.7% increased as compared to previous year.