DETERMINANTS OF FOREIGN INVESTMENTS IN RESIDENTIAL PROPERTIES: EVIDENCE FROM MALAYSIAN STATES

Hassan Fereidouni Gholipour

doi:10.3846/1648715x.2013.822436

Abstract

The last decade has witnessed a strong growth in foreign investments in residential properties (FIRP) in Malaysia. However, FIRP is not equally distributed among Malaysian states. Hence, this warrants an investigation into why some states have larger FIRP than others. The purpose of this paper is to investigate the pattern and determinants of FIRP in Malaysian states. FIRP in Malaysia has been agglomerated in the major and industrialized states (such as Kuala Lumpur, Selangor, Pulau Pinang and Johor). Using a panel of 14 Malaysian states over a period of 7 years (2004–2010) and applying the system Generalized Method of Moments (GMM) approach, the statistical results show that tourism agglomeration (learning about the host location), well-being of the local people, foreign investments in other sectors, religious diversity and minimum property purchase price are important determinants of FIRP.

Highlights

The last decade has witnessed a strong growth in foreign investments in residential properties (FIRP) in Malaysia
The results show that INFRAS variable is not significant at 5% level, suggesting that infrastructure is not a critical factor in determining the FIRP in Malaysian states
We find that foreign direct investment (FDI) is positively associated with FIRP, indicated by an estimated coefficient that is significant at the 1% level

Summary

Introduction

The last decade has witnessed a strong growth in foreign investments in residential properties (FIRP) in Malaysia. The FIRP has recorded impressive growth during the 2000–2010 period, with the annual growth rate of 25% (see Figure 1). In 2000, FIRP was only RM1 204 million while it reached to around RM 1.4 billion in 2010. FIRP accounts for 65% of total foreign investments in Malaysia’ property market. Since opening the country to foreigners, investors from Singapore, United Kingdom (UK), Korea, United States (U.S.), India, Japan and China have been the biggest buyers in Malaysia’s property market. Malaysia’s property market has attracted a large number of investors from Middle East countries mainly due to uncertainty in the Middle East region as well as the availability of Islamic finance in Malaysia (Propertywire, 2011)

Objectives

Methods

Results

Conclusion