The Economy and the Housing Market By: Dr. Zulkiply Omar Senior Research Fellow Malaysian Institute of Economic Research (MIER)
The Malaysian Economy Add a footer 2
The World Economy GDP Growth (% y-o-y) Projections 2016 2017 2018 2019 World 3.2 3.7 3.9 3.9 Advanced Economies 1.7 2.4 2.4 2.2 Emerging Market and Developing Economies World Trade Volume (goods and services) 4.4 4.7 4.9 5.1 2.2 5.1 4.8 4.5 Source: International Monetary Fund (IMF), World Economic Outlook July 2018 3
The Malaysian Economy: Real GDP by Expenditure Components at Constant 2010 prices % year-on-year 2016 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 Private Consumption 6.0 6.7 7.1 7.2 7.0 7.0 6.9 8.0 Public Consumption 0.9 7.5 3.3 3.9 6.8 5.4 0.4 3.1 Gross Fixed Capital Formation 2.7 10.0 4.1 6.7 4.3 6.2 0.1 2.2 Private Investment 4.3 12.9 7.4 7.9 9.2 9.3 0.5 6.1 Public Investment (0.5) 3.2 (5.0) 4.1 (1.4) 0.1 (1.0) (9.8) Domestic Demand 4.3 7.7 5.7 6.6 6.2 6.5 4.1 5.6 Net Exports of Goods & Services 1.7 (15.3) 1.9 2.0 2.3 (1.9) 62.4 1.7 Exports of Goods & Services 1.3 9.8 9.4 11.8 6.7 9.4 3.7 2.0 Imports of Goods & Services 1.3 13.0 10.4 13.3 7.3 10.9 (2.0) 2.1 Real GDP 4.2 5.6 5.8 6.2 5.9 5.9 5.4 4.5 Source: DOSM 4
Industrial Production Index (Manufacturing) % change y-o-y 10.0 8.0 6.0 4.0 2.0 0.0 Manufacturing Export-oriented industries Domestic-oriented industries Source: Department of Statistics Malaysia (DOSM) 5
International Trade RM Million 16,000 % change y-o-y 50.0 14,000 12,000 10,000 8,000 6,000 4,000 2,000 40.0 30.0 20.0 10.0 0.0 (10.0) 0 (20.0) Trade Balance (LHS) Export (RHS) Import (RHS) Source: Department of Statistics Malaysia (DOSM) 6
PMI: Export Order Surveys & World Trade Volumes Source: Capital Economics 7
Source: Bank Negara Malaysia (BNM) Malaysia: Balance of Payments (RM million) Net 1Q17 2Q17 3Q17 4Q17 2017 1Q18 2Q18 2018* : Current Account 4,786 8,772 12,800 13,916 40,275 14,977 3,909 32,940 (% of GNI) 1.5 2.7 3.8 4.0 3.1 4.5 1.2 2.3 Goods 25,010 26,027 31,672 34,056 116,766 35,681 26,055 114,374 Services (6,171) (4,849) (4,823) (6,972) (22,815) (5,846) (6,180) (22,689) Primary Income (10,147) (8,168) (9,631) (8,408) (36,354) (10,192) (11,230) (41,023) Secondary Income (3,905) (4,238) (4,418) (4,761) (17,322) (4,666) (4,736) (17,723) Capital Account 17 (1) (20) (23) (27) (25) (37) - Financial Account (8,313) 8,986 (2,837) 5,965 3,800 15,236 9,151 - Direct Investment 9,209 (7,147) 8,772 5,300 16,134 10,704 (715) - Abroad (8,028) (15,810) (2,964) 1,894 (24,907) (1,276) (3,558) - In Malaysia 17,237 8,663 11,736 3,405 41,041 11,980 2,843 - Portfolio Investment (32,374) 17,513 (9,094) 11,639 (12,316) (2,638) (38,272) - Financial Derivatives 646 (286) 983 (1,452) (109) 753 (213) - Other Investment 14,206 (1,094) (3,498) (9,523) 92 6,417 48,352 - Error & Omissions 1,333 (7,474) (3,759) (17,739) (27,639) (11,997) (13,912) - Overall Balance (2,178) 10,283 6,184 2,119 16,409 18,191 (888.1) - International Reserves (USD) 95.4 98.9 101.2 102.4 102.4 107.8 104.7 - Retained import (months) 8.3 7.9 7.6 7.2 7.2 7.4 7.5 - Res./S-term external debt (times) 1.1 1.1 1.1 1.1 1.1 1.1 - Department of Statistics Malaysia (DOSM) * Ministry Of Finance (MOF), Economic Report 2017/2018 8
The Economy: Summary : The world economy is expected to grow at slower pace as global demand is moderating Global trade flows slowing down High oil prices bad news for energy importing economies US-China trade war knock-on effect Financial market volatility short-term capital outflows from EMDEs due to policy normalization in developed countries Strong USD exchange rate Over relying on private consumption of domestic demand 9
Housing Market Add a footer 10
Imperfect : market Oversupply Housing Market: The Issues Price downward stickiness Supply-demand mismatch Is price really high? 11
Prices vs hold Income, 2009-2016 (RM) State Mean Price Mean hold Income 1 2009 2016 CAGR (%) 2009 2016 CAGR (%) Malaysia 184,002 379,843 10.9 4,025 6,958 8.1 Johor 137,896 301,887 11.8 3,835 6,928 8.8 Kedah 115,951 192,595 7.5 2,667 4,971 9.3 Kelantan 113,642 156,285 4.7 2,536 4,214 7.5 Melaka 122,476 156,876 3.6 4,184 6,849 7.3 Negeri Sembilan 123,906 187,858 6.1 3,540 5,887 7.5 Pahang 132,849 221,129 7.6 3,279 5,012 6.2 Perak 112,620 218,009 9.9 4,407 5,065 2.0 Perlis 99,405 164,504 7.5 2,809 4,998 8.6 Pulau Pinang 209,834 405,195 9.9 2,617 6,771 14.5 Selangor 263,312 430,920 7.3 5,962 9,463 6.8 Terengganu 129,874 263,505 10.6 3,017 5,776 9.7 W.P. Kuala Lumpur 388,430 732,257 9.5 5,488 11,692 11.4 Sabah 284,973 405,956 5.2 3,102 5,354 8.1 Sarawak 243,815 402,847 7.4 3,581 5,387 6.0 Source: Malaysian Price Index (MHPI), NAPIC Department of Statistics Malaysia (DOSM) Note: 1 Data as in 2016 due to limitation of data 12
Elasticity of Housing Demand State Elasticity Price Income Malaysia -0.5-1.3 Johor -0.9-2.8 Kedah -0.2 0.4 Kelantan -21.9 2.5 Melaka -5.5-0.8 Negeri Sembilan -0.7-1.8 Pahang -0.7-0.6 Perak -1.1-0.6 Perlis -2.6-2.9 Pulau Pinang -1.5-2.2 Selangor -3.3-2.2 Terengganu -0.2-1.1 W.P. Kuala Lumpur -1.7-1.3 Sabah 22.1-0.1 Sarawak -0.8-2.6 1 Source: Malaysian Price Index (MHPI), NAPIC Department of Statistics Malaysia (DOSM) Note: 1 Data as in 2016 due to limitation of data 13
Elasticity of Housing Demand : Price elasticity of demand: percentage change in quantity demanded given one percent change in price: negatively related At the national level is not elastic Income elasticity of demand: percentage change in quantity demanded given one percent change in income: positively related Wrong sign: income increase, quantity demanded decreases Reflection of the market rather than consumer behaviour It relates to the affordability issue 14
Affordability Measure : The house-price-to-income multiple: the ratio between median house price and median annual household income, also known as the median multiple Median multiple = Median house price Median annual household income Rule of thumb: median multiple of 3.0 times or less is considered a very good marker for housing affordability 15
Price-to-Income Ratio Based on Income Classes, 2017 State Bottom 40% Middle 40% Top 20% Malaysia 8.4 4.0 1.9 Johor 8.3 4.3 2.3 Kedah 7.7 3.7 1.7 Kelantan 9.1 4.7 2.0 Melaka 4.8 2.5 1.4 Negeri Sembilan 8.8 4.3 2.1 Pahang 7.4 4.3 2.2 Pulau Pinang 5.6 2.9 1.5 Perak 8.1 4.1 2.0 Perlis 11.7 6.3 3.3 Selangor 7.6 3.9 1.9 Terengganu 7.2 4.1 2.1 W.P. Kuala Lumpur 8.3 4.2 2.2 W.P. Labuan 6.5 3.3 1.6 W.P. Putrajaya 11.0 6.9 3.0 Sabah 11.5 5.2 2.3 Sarawak 9.5 4.3 2.0 Source: Property Market Report, NAPIC Department of Statistics Malaysia (DOSM) Note: Income class data as in 2016 due to limitation of data 16
Types of Residential and Price Range Cluster Condominium Detached Semidetached Townhouse Terrace Low-cost Terrace Flat Low-cost Flat 17
Median Prices, 2017 Types W.P. Kuala Lumpur Selangor Cluster 230,000 575,000 Condominium/ Apartment 578,000 338,000 Detached 2,900,000 692,500 Flat 200,000 180,000 Low-Cost Flat 158,000 133,000 Low-Cost 320,000 215,000 Semi-Detached 2,500,000 900,000 Terraced 800,000 515,750 Town s 746,000 380,000 Source: The Residential Prices, NAPIC 18
Price-to-Income Ratio by Type of Residential and Income Classes, 2017 Types Cluster Condominium /Apartment Detached W.P. Kuala Lumpur Flat Low-Cost Flat Low-Cost Semi- Detached Terraced Town s Bottom 40% 3.6 9.0 45.2 3.1 2.5 5.0 39.0 12.5 11.6 Middle 40% 1.8 4.6 22.9 1.6 1.2 2.5 19.7 6.3 5.9 Top 20% 0.9 2.4 12.0 0.8 0.7 1.3 10.3 3.3 3.1 Types Cluster Condominium /Apartment Detached Flat Selangor Low-Cost Flat Low-Cost Semi- Detached Terraced Bottom 40% 10.9 6.4 13.1 3.4 2.5 4.1 17.1 9.8 7.2 Middle 40% 5.6 3.3 6.7 1.7 1.3 2.1 8.7 5.0 3.7 Top 20% 2.8 1.6 3.3 0.9 0.6 1.0 4.3 2.5 1.8 Town s Source: Property Market Report, NAPIC Department of Statistics Malaysia (DOSM) Note: Income class data as in 2016 due to limitation of data 19
Conclusion affordability is the income issue rather than price Therefore, addressing cost or/and prices is not a total solution The housing market is not perfect competition and it will never be Therefore, the affordability issue cannot be totally addressed through market solution 20
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