Tuesday, April 11, 2017

Chart of the Week: Malaysian House Price Inflation

There’s inflation, there’s food inflation, but then there’s house price inflation (quarterly index numbers; 2000=100):

01_indexes

Technical Notes:

  1. Inflation numbers from the Department of Statistics Malaysia
  2. Malaysia House Price Index from NAPIC

7 comments:

  1. QE effect, wasn't it? Yet most Malaysians believe that property price can grow to the sky.

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  2. That's so out of whack. Can we have an analysis of such runaway inflation? Why is there an inflection around 2010?

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    Replies
    1. @Roger

      A few things:

      1. Loan interest rates fell sharply during the global recession in 2008-2009, and stayed low;

      2. Sharply higher household formation rates, as the Malaysian baby boom generation (those born after 1980) started becoming old enough and saved enough to start looking for homes;

      3. Sharply lower supply, due to higher development charges. Developers responded by shifting to smaller, higher value/higher margin developments, but that caused supply to drop roughly by 40% per annum, with most of the actual incoming supply in the wrong market segment

      It's a "perfect storm" kind of thing

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    2. The higher development charges is news to me. Do you have any papers/data that I can refer to understand the issue?

      I understand that state governments and local authorities are using development charges to raise revenue, but surely this must be balanced against the need to encourage supply of lower-priced houses.

      I feel that the government's (be it state or federal) tax-collection drive is just being a dampener on the economy and private consumption in general. You should study the impact of that.

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    3. @Roger

      For Malaysia, no. There's a quite a few studies on other markets though. Here's a good article:

      https://www.theatlantic.com/business/archive/2015/11/zoning-laws-and-the-rise-of-economic-inequality/417360/

      I've studied and talked to quite a few people about the Malaysian market, but for various reasons, I can't write about it. Let's just say the impact is very large.

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    4. From what I gather, the compliance cost in some states can be as high as RM450psf. Hence, its explained surged in property prices in those states amid high land price.

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