MALAYSIAN PROPERTY MARKET, THE STOCK MARKET AND MACROECONOMIC VARIABLES

Abstract

This study examined the interactions and linkages between the property market, stock market, and macroeconomic variables. The stock market, in the long run, has a significant impact on property. Changes in house prices and stock markets have wealth and credit-price effects spilled over to economic growth. Both property and equity markets have a close dependency on income, inflation and monetary policy. The inference and dynamic relationship within asset markets have the capacity to explain the boom and bust cycles. The great potential lies with property and stock market interaction mechanisms to reflect economic conditions and as a source to enrich the present macroeconomic indicators. The Malaysian equity market was observed to be significantly co-integrated with the disaggregated real estate market (state level). The real estate market was mainly found to have a positive relationship with the stock market, GDP per capita (income) and consumer price index (CPI). However, real estate always had a negative relationship with interest rates. While real estate had a positive relationship with real GDP per capita in the long run, the relationship was not significant. This insignificance relationship covers all states and property types. The income coefficients were low and most of non-causality in the short run. This suggests a need for cautious from house price overheating. Price upsurge beyond the reach of the public may get caught with a sudden decline of the people’s affordability level. The impact of property price increase was higher than CPI (inflation). The inflation positive response on property is unusual as it normally follows the interest rate being negative. The shortage of affordable houses has pushed up prices. Inflation coefficients were mainly significant and much higher compared to stock and income coefficients. In short term dynamic linkages, bidirectional causality was detected between lending rates and the overall property market. This suggests a high temporal impact of monetary policy on the property market at the national level.