THE DETERMINANTS

OF TERRACE HOUSING RATES

IN MALAYSIA1st Presenter: ASMA LIYANA JA’AFAR

20148387442nd Presenter: SYAHIRAH AMIRA MD. DIN

20142236243rd Presenter: AMIRUL NIZAM MOKHTAR

2014604954

OUTLINES 1.0 INTRODUCTION

Problem Statements

RQ & RO

Significance of Study

Limitation of Study

Scopes of Study

Definition of Terms

LITERATURE

METHODOLOGY

DISCUSSION

INTRODUCTION Average housing prices in Malaysia increases up to 20% per

year after year 2007 (Tze San Ong,2013).

Terrace housing industry is very salient beneficial to Malaysia especially in the process of becoming a developed country (Jarad, 2010).

Government identifies that terrace housing is a basic need for every citizen.

Housing scheme (PR1MA).

Malaysia’s Property Market Slowing

Global Property Guide. (2014, June 15). Malaysia's Property Market Slowing. Retrieved from Global Property Guide: http://www.globalpropertyguide.com/Asia/malaysia/Price-History

Malaysia’s nationwide house prices rose to RM276,668

Nominal (red line): Excludes macroeconomic factorsReal (blue line): Includes macroeconomic factors

PROBLEM STATEMENTS Rapid economic development has resulted in an increasing

demand in Malaysia.

The price of house increasing dramatically, which has affected the decision making for house buyers.

This is a worrying trend for lenders and brings out a big issue. (Tze San Ong, 2013)

Been a major problem for Malaysian middle-class incomers.

Average monthly household income increase to RM5,900 from RM5,000 in 2012. (Malay Mail Online, 2014)

Median household income for 2014 is RM4,258 compared to 2012, RM3,626. (Malay Mail Online, 2014)

Affordability of Middle-Income Earner & Average House Prices

Dr W. N. Azriyati, A. P. (2009). Affordability Compared to Mean Housing Price For Current Middle Income Home Owners. A Study on Affordable Housing Within The Middle Income Households in The Major Cities and Towns in Malaysia, 15.

Aidila, C. (2011, May 12). Rising House Prices Create Homeless Generation. Retrieved from Malaysia Kini: www.malaysiakini.com/news/163963

RESEARCH QUESTIONS & RESEARCH OBJECTIVES

RESEARCH QUESTIONS

• Does terrace housing rates in Malaysia increase when Foreign Direct Investment (FDI) increases?

• Does increase in inflation rate influenced the increased of terrace housing rates in Malaysia?

• When population growth rates increase, does terrace housing rate in Malaysia increases?

RESEARCH OBJECTIVES

• To identify the relationship between Foreign Direct Investment (FDI) with terrace housing rates in Malaysia.

• To examine the relationship between inflation rate with terrace housing rates in Malaysia.

• To study the relationship between population growth rates with terrace housing rates in Malaysia.

SIGNIFICANCE OF STUDY

Researchers & Academicians

Government policy

Banking sector

LIMITATION OF STUDY

Availability of data

Data is available but the components are comprehensive. Some data collected were not properly in quarterly basis.

SCOPE OF STUDY

Identify the determinants of housing rates in Malaysia using four theories.

Selected macroeconomic variables.

Secondary data (BNM, MIDA, DOSM & World Bank).

Quarterly basis (30 data).

Period Q3 2006 – Q4 2013.

DEFINITION OF TERMS

• Labour in various specialty in construction, material costs, and investment which can influence the property rates.

Foreign Direct Investment (FDI)

• Immediate increase in price of such “store of value” real assets that directly influence the housing rate.

Inflation rate

• Indicates that the demand for the housing is high when the population is increases.

Population growth rate

OUTLINES 2.0 INTRODUCTION

LITERATURE

Literature Review

Underpinning Theories

Research Framework

Hypothesis Statement

METHODOLOGY

DISCUSSION

LITERATURE REVIEW

FOREIGN DIRECT INVESTMENT (FDI)

When the developer runs FDI, it will affect the cost incurred to be increased and this will lead to upturn of property price which will be a major problem to the purchaser (MacDonald, 2010). Another studies conducted by David (2010) found something more which stated that when the developer used foreign investment on workers at low-cost property building, it is not really appropriate as trade barriers for investment exist as uncertainty. These correlation drawback between FDI and workers which increase the housing price is called the shadow house price. Wang (2013), in the other hand found the extra finding of the impact of FDI on house price was greater than that of house price on FDI.

INFLATION RATE An increase in the expected rate of inflation causes an

immediate increased in the relative price of such "store of value" real assets (Felstein, 1983). So, when cost of building increase, of course the developer will tend to charge higher price for their terrace housing property to the purchaser. The research done by Piazzesi and Schneider (2009) made an extension from the previous study which commended that higher the expected inflation tends to lead to an increase in the price-dividend ration on houses. Another finding from McBride (2013) supported this variable which indicated that when inflation is high, the cost of buying a home increases as lenders raise interest rates to curb inflation. As the dollar loses some of its purchasing power with a rise in inflation, any savings have to put aside for a down payment loses value as well.

POPULATION GROWTH RATE According to Ley (2010) and Ong (2013), agreed that housing prices are

related to the population. A study done stated that an increase in the population in Malaysia increases the housing demand and therefore increases the housing price. If there is a greater demand than a supply for housing, it will affect the housing price too. When there are fewer houses in the market, people are willing to spend more money to buy a house. This will cause the housing price to increase. Another study conducted by The finding by Swann (2013) go beyond the previous research by indicated that the overall direction of population growth and housing increase is however jointly upward, and population remains a major determinant of housing requirement. This is strengthen by Pettinger (2014), emphasized that if supply of housing fails to meet the growth in the number of households, it will increase the cost of living, house prices and the cost of renting. This shortfall is causing an increase in long-term house prices, reducing affordability.

UNDERPINNING THEORIES Demand and Supply Theory (Marshall, 1890)

This theory is used to determine the price of market product or services . Quantity demanded is the amount of the good that buyers are willing to purchase and quantity supply is the amount that sellers are willing to sell in the market. Maslow Hierarchy of Needs (Maslow, 1943)

This theory represented the human’s physiological needs as the base of a triangle to show that meeting these needs are the most important in our lives; shelter or house is one of the requirements for addressing the physiological needs. Quantity Theory of Money (Fisher, 1867)

The quantity theory of money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. FDI Macro-Micro Level Theory (Hymer, 1976)

The macro-level FDI theories give the macroeconomic factors that determine the FDI and micro-level theories discuss the motivation of FDI associated with the firm level.

RESEARCH FRAMEWORK

Foreign Direct Investment (FDI)

Inflation Rate

Population Growth Rate

Terrace Housing Rate

INDEPENDENT VARIABLES DEPENDENT VARIABLE

HYPOTHESIS STATEMENTS

Foreign Direct Investment (FDI)

H1: If FDI is high, then the terrace housing rates in

Malaysia will increase.

Inflation rate

H1: If inflation rate is high, then the terrace housing

rates in Malaysia will increase.

Population growth rate

H1: If population growth rate is high, then the terrace

housing rates in Malaysia will increase.

OUTLINES 3.0 INTRODUCTION

LITERATURE

METHODOLOGY

Research design

Data collection method

Regression Flows

Unit Root Test

Normality Test

Auto-Correlation Test

Multicollinearity Test

Correlation Test

Multiple Regression – Findings

DISCUSSION

RESEARCH DESIGNPurpose of study – Causal study/Hypothesis testing

Type of investigation - Correlation

Study setting – Non-contrived

Time horizon - Longitudinal

Unit of analysis - Macro economy

DATA COLLECTION METHOD

Secondary data

Retrieved from Bank Negara Malaysia,

Department of Statistics Malaysia, MIDA & World

Bank

Using 30 data start from Quarter 3, 2006 until

Quarter 4, 2013

Journals retrieved from Emerald, UiTM Ez Access

and Google Scholar

Regression FlowsSecondary Data Collected

Unit Root Test

Multiple Regression Analysis

• F-test• R-squared• Significant Level

Correlation Test

Multicollinearity Test

Normality Test

Auto-Correlation TestControlling Variables

Unit Root Test A condition with a constant mean, constant

variance, and constant auto-covariances for each given lag.

Variables5% Significant

at Level (intercept)

5% Significant at 1st

Difference (intercept)

Housing Price Indicator (Y)  0.7609 0.0000

Foreign Direct Investment (X1)  0.3212 0.0003

Inflation Rate (X2) 0.4133 0.0128

Population Growth Rate

(X3)0.3731 0.0001

The data has no unit root

Normality Test Determine whether error term is normally

distributed

The error term is normally distributed > 5%

Auto-Correlation Test To investigate whether there is a serial

independence for the error term

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 3.986378 Prob. F(2,23) 0.0326

Obs*R-squared 7.464945 Prob. Chi-

Square(2) 0.0239

Error term is serially independent > 5%

Multicollinearity Test Whether independent variables are highly correlated

with each other or not

Independent Variables

Centered Variation Inflation Factor

Foreign Direct Investment (X1) 1.224135

Inflation Rate (X2)  1.233808Population Growth Rate

(X3) 1.051758

There is no multicollinearity problem < 10 value

Correlation Test If there exists any linear relationship or correlation

of the dependent variable with any of the independent variable

There is a correlation < 5%

P-Value of T- StatisticForeign Direct

Investment (X1)

Inflation Rate (X2)

Population Growth

Rate (X3)

Housing Price

Indicator (Y)

0.420155 0.020211 0.733684

Multiple Regression - FindingsVariable Coefficien

t Std. Error t-Statistic Prob.  C 31.39395 4.859412 6.460443 0.0000

Foreign Direct Investment 0.839862 0.285685 2.939816 0.0070

Inflation Rate -0.186718 0.316382 -0.590168 0.5604Population

Growth Rate -15.95356 2.784843 -5.728710 0.0000R-squared 0.661821

Prob. F-statistic 0.000004

Most Significant : Population Growth Rate

Independent Variables Hypothesis Findings Relationship

with DV

Foreign Direct Investment

If FDI is high, then the terrace housing rates in Malaysia will increase

Significant at 5%

Confidence level

Directly Proportional

Inflation RateIf inflation rate is high, then the terrace housing rates in Malaysia will increase

Not Significant at

5% Confidence

level

-

Population Growth Rate

If population growth rate is high, then the terrace housing rates in Malaysia will increase

Significant at 5%

Confidence level

Inversely Related

OUTLINES 4.0

INTRODUCTION

LITERATURE

METHODOLOGY

DISCUSSION

DISCUSSION For future research undertakings, we recommend that the

researcher:

To use panel data, varies in term of geographical area (etc urban/rural).

To use data period on yearly basis (widen the spurious regression).

Using currency value instead of rate of percentage for dependent variable.