Research Proposal The Macroeconomic Determinants of Housing Price

FACULTY OF BUSINESS AND MANAGEMENT
BACHELOR OF BUSINESS ADMINISTRATION (HONS) FINANCE
QUANTITATIVE RESEARCH METHOD (MGT646)
RESEARCH PROPOSAL:
THE MACROECONOMIC DETERMINANTS OF HOUSING PRICE IN

MALAYSIA
PREPARED BY:
NO. STUDENT’S NAME MATRIC NO.
1. LUQMANUL HAKIM BIN JOHARI 2020977427
2. MUHAMMAD NAQIB BIN ZAINUDDIN 2020964523
3. MUHAMMAD NUR AFFANDI BIN JA’AFFAR 2020970549
4. MUHAMMAD NURIZZ HAKIM BIN RAZALI 2020974333
5. NURUL AMIRA BINTI BAZLI 2020974971
GROUP: JBA242 5B
PREPARED FOR:
DR. AHMAD SYAHMI BIN AHMAD FADZIL

AUTHOR’S DECLARATION
We declare that the work in this dissertation was completed in accordance with Universiti
Teknologi MARA regulations. Unless indicated or acknowledged as referenced work, it is
original and the results of our own work. This thesis has not been submitted to any other
academic or non-academic institution for the purpose of obtaining a degree or qualification.
We accept that the Academic Rules and Regulations for Post-Graduate, Universiti Teknologi
MARA, which govern the conduct of our research, have been provided to us.
Name and Student Luqmanul Hakim Bin Johari (2020977427)

I.D. No.
Muhammad Naqib Bin Zainuddin (2020964523)
Muhammad Nur Affandi Bin Ja'affar (2020970549)
Muhammad Nurizz Hakim Bin Razali (2020974333)
Nurul Amira Binti Bazli (2020974971)
Programme Bachelor of Business Administration (Hons) Finance
Faculty Business Administration
Dissertation Title The Macroeconomic Determinants of Housing Prices in Malaysia
Signature of LUQMAN, NAQIB, AFFANDI, HAKIM, AMIRA

Students
Date OCTOBER 2021
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ABSTRACT
The purpose of this research is to look into the macroeconomic factors that influence housing
prices in Malaysia from 2001 to 2020, which consists of 20 observations. In comparison to past
years, the price of housing in Malaysia has been steadily increasing. It has generated a plenty
of issues for countries, especially in terms of economic development. The rise in housing prices
has had a number of negative consequences for households. As a result, the purpose of this
study is to look into the substantial relationship between housing prices and macroeconomic
variables that influence housing prices. The macroeconomics variables chosen are gross
domestic product (GDP), lending rate (LR), inflation rate (IR) and unemployment rate (UR) in
Malaysia. Ordinary Least Square (OLS) method is applied in this study, with the purpose of
capturing the effect of independent variables. Descriptive analysis and correlation analysis also
were also employed in order to measure the relationship between the dependent and
independent variables. This study concludes that the lending rate and unemployment rate are
significant toward the Malaysian housing price index, whereas gross domestic product (GDP)
and inflation rate is not significant toward the housing price index in Malaysia. Although
lending rate and unemployment rate is significant but both these independent variables showed
a negative relationship with the house price index. The findings benefit various parties such as
government, investors, policy makers, housing developers, speculators and home buyers to
know which factors is most affected the movement of house price investment decision. Thus,
this paper helps the government stabilise the price of residential housing in Malaysia. The
results concluded that lending rate and unemployment rate have the major effects in
determining the housing price.
Keyword: Housing price index, Gross Domestic Product, Lending rate, Inflation rate,
Unemployment rate, Malaysia.
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ACKNOWLEDGEMENT
First and foremost, we would want to thank Allah for assisting us in completing our
research. Our study project's success needed a great deal of support and cooperation from many
people, and we are really grateful to be able to do so during our research project. Everything
we have accomplished has been made possible by such direction and assistance, and we would
want to express our gratitude.
We would also like to deeply thank Dr. Ahmad Syahmi Bin Ahmad Fadzil, our
Quantitative Research Methods lecturer, for guiding us from the beginning and during the full
process of performing this research project. It is also an opportunity for us to pay close attention
to our peers who have worked and achieved along the same route as we have.
Lastly, we would like to express our appreciation to our parents and other family
members for their assistance in any manner, as well as everyone who contributed actively to
the preparation of this research. Our research study report would not have been possible without
the involvement, teamwork and commitment that was shared amongst us along the route.
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TABLE OF CONTENTS
AUTHOR’S DECLARATION .............................................................................................. 2
ABSTRACT ......................................................................................................................... 3
ACKNOWLEDGEMENT ..................................................................................................... 4
TABLE OF CONTENTS ...................................................................................................... 5
LIST OF TABLES ................................................................................................................ 9
LIST OF FIGURES ............................................................................................................ 10
CHAPTER 1: INTRODUCTION ........................................................................................ 11
1.1 Introduction .......................................................................................................... 11
1.2 Background of Study ............................................................................................ 13
1.2.1 Property Market in Malaysia ............................................................................... 15
1.2.2 Macroeconomic Factor That Affect House Price Index ........................................ 18
1.2.2.1 Gross Domestic Product (GDP) in Malaysia.................................................. 18
1.2.2.2 Lending Rate in Malaysia ............................................................................. 19
1.2.2.3 Inflation Rate in Malaysia ............................................................................. 20
1.2.2.4 Unemployment Rate in Malaysia .................................................................. 22
1.3 Problem Statement ..................................................................................................... 25
1.4 Research Questions ............................................................................................... 27
1.5 Research Objectives .............................................................................................. 27
1.6 Significance of Study ............................................................................................ 28
1.6.1 Investors Access .................................................................................................. 28
1.6.2 Government Policy .............................................................................................. 28
1.6.3 Housing Developers ............................................................................................ 29
1.7 Scope of Study ...................................................................................................... 30
1.8 Limitation of Study ............................................................................................... 30
1.9 Definition of Terms ............................................................................................... 31
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1.10 Summary ................................................................................................................. 33
CHAPTER 2: LITERATURE REVIEW ............................................................................. 34
2.1 Introduction ............................................................................................................... 34
2.2.1 House price index ................................................................................................ 34
2.3 Factors That Affect Housing Price ............................................................................. 36
2.3.1 Gross Domestic Product (GDP) ........................................................................... 37
2.3.2 Lending Rate ....................................................................................................... 38
2.3.3 Inflation Rate ...................................................................................................... 39
2.3.4 Unemployment Rate ............................................................................................ 40
2.4 Summary ................................................................................................................... 42
CHAPTER 3: RESEARCH METHODOLOGY .................................................................. 44
3.1 Introduction ............................................................................................................... 44
3.2 Research Design ........................................................................................................ 44
3.2.1 Purpose of Study ................................................................................................. 44
3.2.2 Types of Investigation ......................................................................................... 45
3.2.3 Researcher Interference ....................................................................................... 45
3.2.4 Study Setting ....................................................................................................... 45
3.2.5 Unit of Analysis .................................................................................................. 45
3.2.6 Time Horizon ...................................................................................................... 46
3.3 Sampling ................................................................................................................... 46
3.4 Data Collection .......................................................................................................... 46
3.4.1 Thomson Reuters Datastream .............................................................................. 47
3.4.2 World Bank Open Data ....................................................................................... 47
3.4.3 Trading Economics.............................................................................................. 47
3.4.4 Statista ................................................................................................................ 48
3.4.5 International Monetary Fund (IMF) ..................................................................... 48
3.4.6 Google Scholar .................................................................................................... 48
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3.4.7 EViews................................................................................................................ 48
3.4.8 Department of Statistics Malaysia (DOSM) ......................................................... 48
3.5 Variables ................................................................................................................... 49
3.5.1 Dependent Variable ............................................................................................. 49
3.5.2 Independent Variables ......................................................................................... 50
3.6 Theoretical Framework .............................................................................................. 51
3.7 Hypothesis Statement................................................................................................. 53
3.8 Test Consideration for Data Analysis ......................................................................... 54
3.8.1 Descriptive Analysis ............................................................................................ 54
3.8.2 Correlation Analysis ............................................................................................ 55
3.8.3 Regression Analysis ............................................................................................ 56
3.9 Summary ................................................................................................................... 58
CHAPTER 4: RESEARCH ANALYSIS ............................................................................. 59
4.1 Introduction ............................................................................................................... 59
4.2 Descriptive Analysis .................................................................................................. 59
4.3 Correlation Analysis .................................................................................................. 62
4.4 Regression Analysis ................................................................................................... 64
4.4.1 Coefficient of Determination (R²) ........................................................................ 64
4.4.2 Unstandardized Beta Coefficients ........................................................................ 65
4.4.3 F-TEST (ANOVA) .............................................................................................. 65
4.4.4 Significance of a variable based on t-test using a p-value ..................................... 66
4.4.5 Parameter significance T- Test ............................................................................ 67
4.4.6 Discussions ......................................................................................................... 67
4.5 Summary ................................................................................................................... 68
CHAPTER 5: CONCLUSION AND RECOMMENDATION ............................................. 69
5.1 Introduction ............................................................................................................... 69
5.2 Finding on Major Discussion ..................................................................................... 69
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5.2.1 Research Objective 1 ........................................................................................... 69
5.3 Policy implication ...................................................................................................... 72
5.4 Limitation of Study .................................................................................................... 74
5.5 Recommendation ....................................................................................................... 75
5.6 Conclusion ................................................................................................................. 77
5.7 Summary ................................................................................................................... 79
REFERENCES ................................................................................................................ 80
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LIST OF TABLES
Table 1: Definition of Terms ............................................................................................... 31

Table 2: Independent Variables ........................................................................................... 50
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LIST OF FIGURES
Figure 1: Global Real House Price Index ............................................................................. 13

Figure 2: Malaysia House Price Index and Year-on-Year Percentage Change ...................... 16
Figure 3: GDP in Malaysia from year 1995 to year 2020 ..................................................... 18
Figure 4: Lending Rate in Malaysia from year 1995 to year 2020 ........................................ 20
Figure 5: Inflation rate in Malaysia from year 1995 to year 2020 ......................................... 21
Figure 6: Unemployment rate in Malaysia from year 1995 to year 2020 .............................. 23
Figure 7: Theoretical Framework ........................................................................................ 51
Figure 8: Descriptive Analysis ............................................................................................ 59
Figure 9: Correlation Analysis............................................................................................. 62
Figure 10: Regression Analysis ........................................................................................... 64
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CHAPTER 1: INTRODUCTION
1.1 Introduction
For every human being, having a home is essential. For most people, owning a home is
a lifelong ambition. Housing is a fundamental requirement for every human being because
these assets may serve as a safe haven for people to live in while also providing them with
safety. As a result, the most troubling problem for households when making the decision to
purchase a house is the fluctuation in housing prices (Nuzul Azam Haron, 2013). Housing
prices are comprised of indices of housing rent prices, indices of real and nominal house prices,
and ratios of price to rent and price to income, among other things.
Malaysia's home price condition will be explored in this study. Studying this backdrop
is important because it helps us to understand how macroeconomic drivers like the GDP,
lending rate, inflation rate and unemployment rate affect the Malaysia housing price level. In
the eyes of consumers, investors, and policymakers, Malaysia housing price level is critical.
This is because changes in the price level can affect the efficiency and effectiveness of the
Malaysian economy, as well as investor decision-making and household wealth. As a result, a
better knowledge of the relationship between the price level and its drivers would be beneficial
in improving predicting capabilities in the housing market (Sabrina Abdul Latif et al., 2020).
Therefore, to enhance the forecasting skills in the housing market, a deeper understanding on
the relationship between the price level and its determinants would be useful.
The determinants of housing price from macroeconomic perspectives in Malaysia was

chosen as our topic because we noted that Malaysian house prices have been steadily growing
in recent years. Housing price index rate increase significantly from 6.6% in 2010 to 13.4% in
2013. Although the rate index starts to decline from 9.5% in 2014 to 1.2% in 2020, housing
price rate index still become the main issue that face by the citizens of Malaysia. From that,
Malaysians are currently experiencing problems obtaining their dream homes. As a result of
our research, we were able to determine which determinants have the most impact on housing
prices.
To begin, the study's background consists of a broad concept, and after that each
macroeconomic factor that influences the house price index in Malaysia will be addressed in
greater depth. Following that, this chapter will continue with a problem statement that gives
readers a thorough knowledge of the study, as well as research questions and research
11
objectives. Hypotheses and the significance of the study will be discussed, and terms will be
defined as needed. A brief summary will be discussed in the final section of this chapter.
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1.2 Background of Study
Every human being values their home, and owning a home is a major life ambition for
most people. Housing is a basic requirement for every human being because these assets can
serve as a place for people to stay and provide protection. As a result, the biggest concern for
households when deciding whether or not to buy a home is the fluctuation in housing prices
(Nuzul Azam Haron, 2013). For example, rising house costs have rendered young people of
low and middle income unable to purchase a desirable home. Furthermore, changes in house
prices in a country have an impact on household spending and borrowing habits. This will have
an impact on the family's perceived lifetime wealth. House price fluctuations, according to Thai
Ha Le, may have a considerable impact on changes in household wealth because households
are the largest investment group for housing in most nations (Le, 2015). Aside from providing
security and shelter, a home can also be used as a long-term investment vehicle. When public
infrastructure, such as highways and public transportation, is renovated, it will benefit the
households who live near such infrastructure. As a result, demand for homes will increase,
causing housing prices to climb. Furthermore, if the government continues to invest in
infrastructure projects, it will be able to support the country's economic growth. Moreover,
when market demand rises, the landlord or broker would bid up the prices in lockstep with the
rise in housing prices.
Figure 1: Global Real House Price Index
Source: International Monetary Fund, 2021
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The International Monetary Fund (IMF) calculates the global real house price index
from the year of 2000 quarter one to 2020 quarter four and compiles it in the graph above. The
global real house price index witnessed steady growth in the first quarter of 2008, peaking at
159.31. However, from the first quarter of 2008 (159.31) to the second quarter of 2009, the
global house price index drops by roughly 14 percent (145.32). This was related to the subprime
mortgage crisis in the United States and the global financial crisis in 2008. After that, starting
in 2009, the worldwide housing price index begins to vary between 140 and 155. It clearly
demonstrates that housing prices around the world have begun to rebound and are steadily
increasing. In summary, the global financial crisis of 2008 resulted in the collapse of financial
markets, which led to a global economic recession and a housing bubble. As a result, changes
in housing prices may have an impact on area economic activity (Lean & Smyth, 2012).
In 2020, prices climbed by 5.6% on average, up from 5.3% in 2019. In addition, prices
have risen in 89% of nations and territories, with several emerging markets performing well,
including Turkey, which tops the index for the fourth quarter in a row. Low interest rates are
fuelling demand, while inventory levels are low in some markets, with sellers hesitant to list
their property until they have found their next home. With travel limitations in place, demand
is coming from local buyers who have evaluated their lifestyles since the pandemic struck, with
many now looking for home offices and outdoor space. Strict lockdowns, increased
unemployment, and a supply surplus in some regions are all contributing to lower price
inflation in these Southern European nations (Everett-Allen, 2021).
Given its relatively effective handling of the pandemic, Asia Pacific's performance
remains rather anaemic. In Asia, housing demand and hence price growth remain city-specific
rather than country-wide. Annual price rise in Hong Kong SAR and Malaysia both fell into
negative territory, and Singapore's pace of growth was modest at 2.5%. The rate at which the
vaccine is distributed and economies reopen will have a direct impact on the performance of
housing markets in 2021. As policymakers withdraw stimulus measures, putting jobs and
mortgages at risk, prices may fall, but the lifting of travel prohibitions may allow cross-border
transactions to resume, reducing some of the effects (Everett-Allen, 2021).
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1.2.1 Property Market in Malaysia
Malaysia's property price index is expected to be the 29th highest among 40 Asian
countries in 2020, according to the World Bank (Numbeo, 2020). As a result of the COVID-
19 pandemic, demand for property has been restricted, placing downward pressure on housing
prices. According to the Valuation and Property Services Department (JPPH), Malaysia's house
price index climbed by a meagre 0.3% in the year to the first quarter of 2021, compared to a
1.9% the previous year, according to the same department. Prices increased by an average of
7.5% per year between 2010 and 2019. When adjusted for inflation, house prices fell 1.3% year
on year in the first quarter of 2021. In the first quarter of 2021, the index of house prices
increased by 1.7% on a quarterly basis (but fell 0.2% in real terms). The average property price
in Malaysia was MYR 432,220 (US$103,106) in the first quarter of 2021, according to the
Land Registry (Guide, 2021). Furthermore, as a result of Malaysia's rapid economic expansion,
there has been an increase in demand for residential accommodation in the country's
metropolitan areas (Ong, 2013). A direct outcome of this has been a huge spike in the price of
residential real estate over the previous ten years. Individuals, organisations, and the
government will be drawn in by a significant increase in the value of housing market as a result
of this growth.
However, a house bubble will arise in Malaysia if borrowing costs are low and bank
lending is large, leading to investment and speculation. Prices for housing will continue to
climb until they reach unsustainable levels in relation to national incomes and other economic
factors. When a result, banks will confront capital constraints as non-performing loan cases
emerge. When banks begin to restrict credit, the economy and house prices will be affected
(Hussain et al., 2012). The Malaysian economy contracted by 5.6% in 2020, compared to
4.3% growth in 2019 and the largest drop since the Asian Financial Crisis in 1998. From 2010
to 2019, the economy grew at a solid annual rate of 5.3% on average. According to the
International Monetary Fund (IMF), the economy will resume growing this year, with a
forecast real GDP expansion of 6.5 percent (Guide, 2021).
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Figure
FigureMalaysia
2: Malaysia
House
House
Price
Price
Index
Index
and and
House
Year-on-Year
Price 1 Year
Percentage
Percentage
Change
Change
Source: National Property Information Centre (NAPIC)
According to the data in the graph above, after a brief fall in 1999, local property prices
began to rise steadily, with a compound annual growth rate (CAGR) of 3.47% from 2000 to
2010. There was the 2000 Dot-com Bubble, the 2008 Subprime Global Financial Crisis, and
the Swine Flu outbreak in 2009–2010, all of which seemed to have no effect on the property
industry during this time. As a result, it is obvious that the country's housing market has been
less affected by recent crises. Rather, it is heavily influenced by local market factors, such as
lending policies, market attitudes, particularly confidence about future capital appreciation, and
developer marketing.
After that, the HPI in Malaysia has been increasing since 2001. From 2001 to 2009, the
Malaysian house price index increased consistently, however from 2010 to 2015, the Malaysian
house price index increased significantly. In other words, from 2001 to 2008, Malaysia's house
price index growth rate fluctuated but remained reasonably stable, averaging roughly 3.28
percent each year. However, due to the Global Financial Crisis in 2008, Malaysia's GDP fell
from 3.32 percent (2008) to -2.52 percent (2009). As a result of the 2008 economic crisis,
several businesses began to minimise costs by reducing labour working hours. This had an
indirect effect on the housing market's growth rate, which fell substantially in three quarters,
from the third quarter of 2008 (5.0 percent) to the first quarter of 2009 (0.7 percent). Following
then, the housing market began to rise in price. The growth rate was significantly increase by
around 4.1 percent from year 2009 third quarter (1.5 percent) to 2009 fourth quarter (5.6
percent).
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Furthermore, during the first quarter of 2010 to the first quarter of 2012, housing prices
increased by an average of 8.83 percent yearly. This was due to the fact that Malaysia was still
recuperating from the Global Financial Crisis at the time. Between the first quarter of 2001
to the fourth quarter of 2015, the growth rate of the house price index was at its greatest, with
12.2 percent, and peaked in the fourth quarter of 2012 and the third quarter of 2013. After
reaching a peak, the growth rate began to decline until the third quarter of 2016. In summary,
because the Malaysian house price index has been rising since 2001, it is critical for this study
to identify and analyse the important factors of house price in Malaysia.
However, the economic losses linked with the Covid-19 are currently greater than those
associated with earlier crises. Covid-19 spreads swiftly, therefore the economic consequences
are largely due to the essential pandemic containment measures, which have interrupted the
majority of business activities.
Malaysia's housing market has cooled down a lot in the last two years because there is
so much housing available. This comes after a decade of rising prices. MYR 18.48 billion (US$
4.41 billion) worth of apartments in Malaysia's biggest cities haven't been sold, which is
because there was a lot of high-end housing built during the recent boom. However, the
government's efforts to boost the economy aren't completely useless. To stop people from
overbuilding, the government has put in place a number of policies to stop people from
speculating and stop developers from overbuilding. Stamp duty on households worth more than
MYR 1 million (US$ 238,578) has gone up from 3% to 4%. The government also added a 5%
real property gains tax (RPGT) to sales of properties that had been owned for six years or more.
In order to deal with the effects of the pandemic on the housing market, however, these rules
have been temporarily eased up (Guide, 2021).
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1.2.2 Macroeconomic Factor That Affect House Price Index
1.2.2.1 Gross Domestic Product (GDP) in Malaysia

The best approach to assess a country's economy is to look at its GDP.
Personal consumption, government spending, business investment, and net
exports make up a country's GDP in general. When exports are raised but
imports remain unchanged, the GDP of a country is directly influenced. GDP is
a leading indicator that measures a country's long-term performance. As a result,
all parties, including economists, policymakers, businessmen, speculators, and
even consumers, will keep an eye on their country's GDP. If their country's GDP
fluctuates, it could result in financial loss or gain.
Figure 3: GDP in Malaysia from year 1995 to year 2020
GROSS DOMESTIC PRODUCT IN

MALAYSIA (1995 - 2020)
15
10
GDP (ANNUAL %)
0
2001
2011
1995
1996
1997
1998
1999
2000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2012
2013
2014
2015
2016
2017
2018
2019
2020
-5
-10
YEAR
Gross Domestic Product in Malaysia (1994 - 2020)
Source: The World Bank, 2021
Based on the data in the graph above, it is evident that there is a volatility
during specific periods. Due to the Asian Financial Crisis, GDP growth slowed
sharply in 1998, falling to -7.35 percent. This triggered an economic downturn,
resulting in more unemployment and higher inflation rates. Aside from that,
several businesses had challenges during these times. Furthermore, the
economy began to develop again in 1999, following the robust rebound, and it
reached 8.86 percent in 2000. From 2002 through 2008, GDP growth was varied
but rather constant, averaging 5.95 percent. However, due to a drop in
worldwide demand and the global economic slump, growth declined drastically
to -2.52 percent in 2009. In 2010, GDP growth rebounded sharply, returning to
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6.98 percent. This is because the Federal Reserve has utilised expansionary
monetary policy to protect the financial system from stock market crashes and
capital outflows (Athukorala, 2010). Furthermore, between 2011 and 2015, the
GDP growth rate remained stable at around 4% to 6%.
Malaysia's economy shrank sharply in the fourth quarter of 2020,

resulting in a bigger loss in Gross Domestic Product (GDP) than the government
had projected, according to the latest available data. According to Uzir Mahidin,
the chairman of the Department of Statistics Malaysia, the country's gross
domestic product (GDP) contracted by 3.4% in the fourth quarter, a larger loss
than the 2.7% experienced in the third quarter. The economy as a whole shrank
by 5.6%, the most significant drop since the Asian Financial Crisis in 1998. The
Ministry of Finance had previously announced that it expected the economy to
decrease by 4.5% in the year 2020. Malaysia's gross domestic product (GDP)
increased by 4.3% in 2019. Specifically, between October and December of last
year, the government implemented further restrictions, including travel
restrictions, as it hastened to deal with a third wave of Covid-19 infections that
had been detected in the country (Ram Anand, 2021).
Other than that, housing can also contribute to GDP through consumer
spending on housing services and investment in housing. As a result, GDP and
housing are linked to explain their impact on economic growth. GDP growth
could imply that the country's economy is in good shape. Ong & Chang also
analysed and found that GDP has a substantial association with the housing
price index (Ong & Chang, 2013). Meanwhile, some researchers have
discovered that there is a considerable connection between GDP and housing
prices. In summary, GDP is an important element that must be considered when
determining housing prices.
1.2.2.2 Lending Rate in Malaysia

People nowadays prefer to utilise credit purchase to buy a house since
they cannot afford to buy a house in one lump amount and thus prefer to borrow
a housing loan from a bank and pay monthly instalments. This is one of the
options for purchasing a house (Wachter, 2014). The weighted average lending
rates on loans set by the central bank, merchant banks, commercial banks, and
19
finance corporations are referred to as the average lending rate, commonly
known as the interest rate.
Figure 4: Lending Rate in Malaysia from year 1995 to year 2020
LENDING RATE IN MALAYSIA (1995 -

2020)
LENDING RATE (ANNUAL %)
13
11
9
7
5
3
2003
2004
2018
2019
1995
1996
1997
1998
1999
2000
2001
2002
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2020
YEAR
Lending Rate in Malaysia (1995 - 2020)
Based on data from the Central Bank of Malaysia, it appears that the
lending rate in Malaysia is continuing to fall, while the lower cost of borrowing
has resulted in an increase in money supply, which has resulted in a quick rise
in property prices (Fitwi et al., 2015). According to the graph above, the lending
rate in Malaysia dropped significantly from 9.59% to an average of 6% in 2003,
and then reduced slightly between 2003 and 2005. The mortgage loan wars
amongst commercial banks were to blame for the huge drop in lending rates
(Teck-Hong, 2010a). When the lending rate is low, investors are more enticed
to borrow to purchase a new house (Teck-Hong, 2010a).
1.2.2.3 Inflation Rate in Malaysia

Inflation is described as a rise in a country's price level. When a country
experiences inflation, the cost of goods and services rises, resulting in less
exports to other countries as foreign purchasers reduce their demand for goods
that are too expensive for them. As a result, the depreciation of the currency
would reduce the purchasing power of local consumers, as one unit of currency
can now only buy a tiny number of things compared to before. Higher inflation
rates will have a number of negative consequences for citizens and the economy,
20
including lost investment, economic slowdown, stifled economic growth, and,
most importantly, ringgit depreciation.
Figure 5: Inflation rate in Malaysia from year 1995 to year 2020
INFLATION RATE IN MALAYSIA (1995 -

2020)
INFLATION RATE (ANNUAL %)
0
1997
2002
2007
2012
2017
1995
1996
1998
1999
2000
2001
2003
2004
2005
2006
2008
2009
2010
2011
2013
2014
2015
2016
2018
2019
2020
-2
YEAR
Inflation Rate in Malaysia (1995 - 2020)
The graph above shows that Malaysia's inflation rate fluctuates from
time to time. In comparison to other years, the inflation rate in 1998 and 2008
was extremely high. Because to the global financial crisis, the inflation rate in
1998 was 5.3 percent, which means that the public's financial assets are worth
less than they expected. When there is a global financial crisis, the currency
around the world will be affected, which could lead to inflation as raw materials
become more expensive around the world. The rise in global commodity prices,
such as the cost of oil, food, construction materials, and petrol, caused the rate
to rise to 5.4 percent in 2008. In contrast, due to worldwide oil prices, the
inflation rate in 2009 was the lowest compared to previous years. Because of
the decline in global oil prices, transportation of items between markets has
become less expensive, despite of which countries create the finished
commodities.
According to the past research from Gholipour, inflation raises the cost
of building new housing. Increased construction expenses will result in higher
new housing prices (Hassan Fereidouni Gholipour et al., 2014). As a result, the
findings of this study revealed that a 1% increase in inflation would result in a
21
0.027 percent increase in home prices. Furthermore, Pillaiyan had discovered
that Malaysian home prices (MHPI) show a strong long-term link with inflation
(Pillaiyan & Pillaiyan, 2015). Michael White agreed that house prices will rise
at the pace of real house price inflation, with real wage inflation exceeding a
negative value (White, 2015). According to Tsatsaronis & Zhu, most things in
the economy will increase in price during inflation. When it comes to inflation,
however, housing is regarded from two different viewpoints. In general,
housing is seen as an excellent inflation hedge since housing prices tend to rise
in lockstep with inflation (Tsatsaronis & Zhu, 2004a). On the other hand, like
with inflation, we see the growth in housing having a detrimental impact on the
younger generation; housing in Malaysia is not a reality they can afford.
Although housing prices continue to rise, rising living costs and

economic uncertainty have resulted in a decrease in the number of property
transactions (Malaysia real estate market, 2017). The cost of construction, the
cost of raw materials for construction, the cost of maintenance, and other costs
will all rise as the inflation rate rises. As a result of the influence of inflation,
home prices in the country will continue to rise even while buying power has
dropped.
1.2.2.4 Unemployment Rate in Malaysia

Unemployment rate refers to the percentage of people who are unable to
find work but actively seek it. The unemployment rate is calculated by dividing
the total number of unemployed workers by the total number of workers in the
labour force. The unemployment rate is one of the economic indicators used to
assess the economy's performance. With a greater unemployment rate and fewer
consumer spending, the nation's economic growth may be slowed. When
unemployment is high, consumers' purchasing power is reduced, and they are
more likely to preserve their money. As a result, decreased expenditure leads to
22
a sluggish economic expansion. It will result in decreased per capita income and
country production.
Figure 6: Unemployment rate in Malaysia from year 1995 to year 2020
UNEMPLOYMENT RATE IN MALAYSIA

UNEMPLOYMENT RATE (%) (1995 - 2020)
5
4
3
2
1
0
1996
2004
2009
2017
1995
1997
1998
1999
2000
2001
2002
2003
2005
2006
2007
2008
2010
2011
2012
2013
2014
2015
2016
2018
2019
2020
YEAR
Unemployment Rate in Malaysia (1995 - 2020)
The graph demonstrates that the unemployment rate in Malaysia

fluctuated during a period of time. Between 1995 and 2000, the unemployment
rate fluctuated between 3.80 percent and 3.0 percent. This pattern emerged as a
result of the financial crisis that began in the middle of 1997. Malaysia's real
GDP growth has slowed as a result of this. As a result of the poor economic
expansion, the unemployment rate increased throughout that time period. From
2001 to 2004, the unemployment rate increased gradually at around 0.10
percent. The US economy has suffered a collapse as a result of the 911 Incident
(terrorists attacked the US World Trade Center), which has had an indirect
impact on the worldwide economy. As a result, the global economy will be
sluggish as the United States reduces its import activities.
After that, it rose consistently from 2007 to 2009, but fell drastically
after reaching its peak. Following the collapse, it continued to oscillate between
1% and 2.7%. From 2010 to 2011, the unemployment rate in Malaysia
decreased consistently at around 0.6 percent, before ranging between 3 and 3.2
percent from 2011 to 2013. The unemployment rate dropped substantially to 2.7
percent at the start of 2014, then fluctuated about 3.1 percent in 2015.
Unemployment rose by 4.5% in 2020, the highest rate since 1993,

according to the Malaysian Department of Statistics (DOSM). In December
23
2020, the number of people who were unemployed rose by 1.6% to 772,900,
which is a 4.8% rise from the previous year (Department of Statistics Malaysia
Official Portal, 2021). There are going to be a lot more people in the labour
market and the economy is going to be unpredictable in 2020, says Malaysia's
Chief Statistician, Datuk Seri Dr Mohd Uzir Mahidin. As a result, the labour
market will not be as strong as it was in December 2020 because the health crisis
and its economic effects were still having an effect on it. For example, during
the same month, the labour force rose by 27,800 people to 15.99 million.
Mohd Uzir further stated that 533,700 people worked less than 30 hours
per week in the fourth quarter of 2020 (4Q20) due to less productive working
circumstances or insufficient job. As a result of the pandemic's negative
influence on labour demand in 2020, the country's unemployed population
increased by more than 200 thousand people. Furthermore, the health crisis has
had a significant influence on the labour force, resulting in an unemployment
rate of more than 4%, compared to an average of 3% in the pre-crisis period
(Shaheera Aznam Shah, 2021).
According to Reed & Ume, rising housing prices have a detrimental

impact on employees' income in the labour market, and a greater unemployment
rate can eventually make it more difficult for a buyer to purchase a home (Reed
& Ume, 2016). In other words, changes in the labour market have an impact on
both the demand for and the supply of housing. Following their successful job
search and earning of a living, the workers might begin searching for a new
home to purchase in order to reap the most benefits of home ownership. Those
who were previously unemployed will find it easier to purchase an expensive
house if the government increases the number of affordable housing units
available. This will also help to increase the number of property purchases in
Malaysia when those who were previously unemployed find job.
24
1.3 Problem Statement
Housing is really crucial in our lives. Housing is an essential requirement for citizens'
survival, and it is treated as a beneficial investment by both local and foreign investors. House
prices, on the other hand, are inextricably connected to purchasers' capacity to afford a home
(Osmadi et al., 2015). Nonetheless, it is impossible to deny that the cost of housing in Malaysia
today is far higher than it was a few decades ago. For example, developers have stated that
purchasing a house for RM250,000 in Klang Valley or other large urban regions is not a
reasonable price tag. This is owing to the ongoing rise in many areas of construction costs,
particularly as a result of rising land prices (Kamarul Anwar, 2016). As a result, rising housing
prices and the inability to purchase a house has recently become a major issue.
Only 72.5% of Malaysian citizens have their own homes out of the entire population
(Dr. Suraya Ismail, 2015). According to Sherilyn Goh (2015), Malaysia's youthful generation
with low or medium incomes, which account for almost half of the population, are currently
unable to acquire a dream home. The statistic indicates that the majority of the young
generation or recent graduates are unable to purchase a house since housing prices have risen
faster than income levels. If we ignore the impact of rising house prices on macroeconomic
indicators, several implications or problems may develop. The rise in housing prices can be
seen as a severe problem that has negative implications such as financial insolvency stress and
a reduction in economic growth.
According to Rahman (2008), first-time home purchasers will spend a greater price for
their home. They will need to set aside a significant amount of money to cover the larger down
payment and monthly mortgage payments. This is because housing is typically the main
expense in most households' and individuals' budgets. Small fluctuations in housing prices have
a huge impact on households looking to buy a home, as evidenced by the high percentage. In
fact, the majority of purchasers are concerned that they would be unable to keep up with the
rising house costs (Ong & Chang, 2013). Governments and policy analysts have identified a
lack of sufficient and reasonably priced housing as a key challenge facing the country. As a
result of the quick rise in house and land prices, households with a medium income level are
finding it difficult to purchase a home. Despite Malaysia's high housing prices, some
developers have received negative feedback from locals after included the pricing of petroleum
products and natural gas in the housing.
25
Many researchers had argued in the past about housing prices are closely related to the
affordability of buyers to own a house. Therefore, the government plays vital role in ensuring
the housing prices of Malaysia are at par with the income levels. As a result, more research is
needed to determine what is the main factors that influence the house price level in Malaysia.
The types of factors that might affect the housing price includes GDP, lending rate, inflation
rate and unemployment rate. According to the opinion made by Ong & Chang (2013), it state
that GDP plays an important role in contributing to housing prices. Tze San Ong also found
that there is significantly positive relationship between GDP and housing prices in Malaysia.
Meanwhile, in other opinion made by Teck-Hong (2010), base lending rate is the key
determinant of the residential housing activities in most of the states in Malaysia. In addition,
studies conducted by Pinjaman & Kogid (2020) found that inflation rate is one of the
macroeconomic factor that effects housing price in Malaysia. Lastly, according to Branch,
Petrosky-Nadeau, and Rocheteau et al. (2016), housing prices and unemployment rates are
adversely connected. A rise in the unemployment rate will result in lower incomes and, as a
result, a lower ability to purchase a house, allowing housing prices to decline (Jennifer Duke,
2015). These four studies intend to include the four variables which can make the result more
robust.
Thus, the continual rise in house prices in Malaysia has sparked interest in this study,
which aims to analyse and identify the major factors of house prices. Hence, the goal of this
research is to gain a better knowledge of the relationship between macroeconomic conditions
and HPI in Malaysia. This study also attempts to fill the gap from the past study and research
conducted by (Branch et al., 2016; Jennifer Duke, 2015; Ong & Chang, 2013; Pinjaman &
Kogid, 2020; Teck-Hong, 2010a).
26
1.4 Research Questions
This research aims to give more evidence of the influence on Malaysia's housing price level by
answering the following question:
1) Is there any relationship between GDP rate and housing price level in Malaysia?
2) Is there any relationship between lending rate and housing price level in Malaysia?
3) Is there any relationship between inflation rate and housing price level in Malaysia?
4) Is there any relationship between unemployment rate and housing price level in
Malaysia?
1.5 Research Objectives
The purpose of this study is to see the macroeconomics determinants of housing price in
Malaysia. The objectives of this research focus on:
1) To investigate the relationship between GDP rate and housing price level in Malaysia.
2) To investigate the relationship lending rate and housing price level in Malaysia.
3) To investigate the relationship between inflation rate and housing price level in
Malaysia.
4) To investigate the relationship between unemployment rate and housing price level in
Malaysia.
27
1.6 Significance of Study
In comparison to past years, the price of housing in Malaysia has been steadily
increasing. It has generated a slew of issues for countries, particularly in terms of economic
development. The rising cost of housing in Malaysia has piqued the interest of investors, home
purchasers, economists, and policymakers alike. The rising cost of housing has had a
significant detrimental impact on poor and middle-income households. As a result, they have
chosen to rent a home rather than enjoy the perks of home ownership.
Specifically, Ong (2013)'s study on the macroeconomic drivers of Malaysian house

prices found that macroeconomics had a significant impact on housing prices and urged for
additional research in this area. Therefore, this research will highlight the relationship between
macroeconomic indicators such as the gross domestic product (GDP), inflation rates, lending
rates, and unemployment rates and the level of Malaysia's housing prices. This provides a
rudimentary grasp of which determinants have the most impact on house prices, which is useful
for home purchasers or investors.
1.6.1 Investors Access

Recommendations for investors to determine the ideal timing from elements such as
macroeconomic conditions before making any choice to acquire a house as part of their
investment plans would be presented (Ong & Chang, 2013). Furthermore, through this study,
investors, speculators, and home buyers can learn about the elements that influence housing
investment decisions (Ong, 2013). Home buyers can then utilise those characteristics to
determine the best time to buy their home (Ong & Chang, 2013). According to Ibrahim and
Law (2014), understanding housing cycles and their relationship to the market will be vital for
investors. With an insight and knowledge of the housing market, investors can learn about the
aspects that influence their investment and, as a result, decide which investment to pursue
(Ibrahim & Law, 2014).
1.6.2 Government Policy

First, the government and policymakers need to figure out which macroeconomic
factors will have the biggest impact on Malaysian housing prices before they can make any
decisions. They need to be very careful with it and come up with a policy that will be good for
investors, home buyers, and the whole country. As an example, policies from the Ministry of
Housing and Local Government, which are part of the law and policy section. They write
28
policies, circulars, and guidelines about the roles and functions of local governments, update
basic information about local governments, and give advice about the roles and functions of
local governments. As a result, the government must use valid methods and make decisions
quickly and effectively to make sure that citizens have the chance to get a place to live in the
future. Investors, on the other hand, lose money when house prices fall, which lowers their
wealth and lowers the value of their homes. Homebuyers, on the other hand, can buy a house
at a lower price in the future. In the end, the decision to invest in or buy a house is a big one
because it comes with a lot of money and the risk of a big loss.
In a nutshell, this study gives policymakers, the government, future economists, and
other people in Malaysia information about how much homes in Malaysia are worth. The
government can use the good ideas to help the property market grow for the benefit of its
citizens. For example, this study could be used to help people buy a home at the right time in
terms of macroeconomics. People who read this study can also learn more about how to have
a well-planned investment strategy and make a smart decision to reduce their risk. Finally, it
could be a help and a guide for future researchers. In the end, this study will look at the most
important relationship between these macroeconomic factors and the rise in the price of
Malaysian housing.
1.6.3 Housing Developers

This study also gives housing developers a good place to look at what households want
and need when they buy a home. Then they might make their products to meet the needs of
Malaysians. Construction companies will also pay a lot of attention to information about the
housing market and the elements because it tells them if there have been changes in the market,
which is important (Ibrahim & Law, 2014). According to Tan & Hong (2009), a study on home
ownership motivation will help housing developers understand why they should focus their
efforts. If you're building a house, you should make sure they meet the needs and wants of
Malaysians, and you should also think about how Malaysians' lives have changed (Tan &
Hong, 2009).
In short, the findings of this study will help investors, speculators, home purchasers,
government officials, and housing developers prepare for and invest in the future in connection
to the fluctuation of the Malaysian housing price index.
29
1.7 Scope of Study
With the rapid increase in the population, there has been a corresponding increase in
housing prices, especially in countries like Malaysia. In view of this situation, the present study
analyses the macroeconomic determinants of housing prices in Malaysia. The study will
concentrate on economic factors that influence Malaysian housing prices, such as the gross
domestic product (GDP), lending rate, inflation rate and unemployment rate. The data range
that will be measured spans 20 years, from 2001 until 2020. The primary source of data for
data analysis used in this study is Thomson Reuters Data Stream, World Data Bank and
previous research which offered to access the variables from the world development indicators
and global development finance.
1.8 Limitation of Study
During this study, there were several limitations found in this study. Firstly, the data
that is being used in this study refers to the whole Malaysia housing market. So, it might not
be accurate for research that examines certain geographical regions in Malaysia. For instance,
if the study employs the same independent variable, such as interest rate, in the event that there
is a drop-in interest rates, it will lead to an increase in the house price (Lean & Smyth, 2012).
However, for a specific region, such as Melaka, it may not be affected, or the price of houses
may decrease. This is owing to the fact that house prices in various geographical locations may
vary greatly due to differences in wealth and living standards. The findings of this study may
be enough if applied to the whole Malaysian housing market, but they are not detailed enough
to be applied to a single geographical location.
Not only that, through this study, there is not only macroeconomic factor that give
impact toward housing price. It also affects by other variable such as supply and demand. The
law of supply and demand state that when there is a high demand for a good, its price rises. If
there is a large supply of a good but not enough demand for it, the price falls. In context of
houses, if there is increase in demand for house so the price tends to rise (Ong, 2013). However,
in this study we will analyze more about macroeconomic factor such as gross domestic product
(GDP), interest rate, and inflation rate. This may result in the outcome may not portrait the
whole scenarios that influence the housing price in Malaysia.
30
Another drawback is the inclusion of qualitative factors such as changes of government
policy or government new programmes. For example, consider the recent continuation of
Malaysia My Second Home (MM2H) programme and PR1MA. This change of government
policy may have an indirect impact on the behavior of home buyers and sellers (The Malay
Mail, 2016). This study may be more credible if it could collect results from changes in
government policy and other qualitative factors.
1.9 Definition of Terms

Table 1: Definition of Terms
Terms Definition
Population growth is defined as the percentage increase in the

population of all citizens, regardless of background or
nationality, except immigrants, who are counted as part of the
Population growth
population of the nation of origin. There is a claim that
population expansion had a considerable impact on property
prices (Burda, 2013).
Demand is defined as the pace at which people wish to

purchase a product. It is determined by two factors: choice
(taste) and purchasing power. Preference applies to a
Demand
consumer's desire for a product, which influences his or her
readiness to buy that product at a certain price (Whelan &
Msefer, 1996).
Inflation is described as a rise in a country's price level. When

a country suffers inflation, the cost of products and services
rises, resulting in less exports to other countries as foreign
purchasers reduce their desire for things that are too expensive
Inflation
for them. Moreover, when it comes to the overall price levels
of goods and services, an increase in inflation is thought to
have an impact on home prices (Gaspareniene, Remeikiene &
Skuka, 2016).
31
From a financial standpoint, an exchange rate is defined as the
process of exchanging one currency for another. The entry and
outflow of funds into a nation is determined by the movement
Exchange rate of the exchange rate denominated in that currency. According
to Stephy (2016), Malaysia's economy is stagnating as a result
of the ringgit's devaluation, which raises the cost of living as
property prices rise.
The role of the exchange rate in macroeconomics is defined by

this theory. The currency and buying power of various
Purchasing Power countries may differ. This idea also states that when the
Parity (PPP) exchange rate is in equilibrium within both nations, local
citizens and foreigners will have equal purchasing power
(Rudiger & Paul, 1976).
Faure (2014) defines interest rate as the incentive provided by

Interest rate /
a borrower/ debtor to a lender/creditor for the usage of money
Lending rate
for a set period of time.
Gross domestic product (GDP) is a term that refers to the

Gross Domestic
market value of goods and services produced inside a country
Product (GDP)
over a specified time period, often a year (Leamer, 2009).
The index of house prices can be described as a broad measure

of the change of single-family dwelling values over a period of
time. It is used as an analytical tool for assessing changes in
Housing Price
the rates of loan defaults, prepayments, and housing
Index
affordability, as well as an indicator of trends in the value of
residential real estate, among other things (Daniel Liberto,
2021).
Unemployment is defined as a situation in which a person who

is actively seeking employment is unable to seek jobs. Most
Unemployment
economists use the unemployment rate, which is computed by
dividing the number of unemployed people by the total number
32
of people who are in the labour force, to assess the state of the
labour market (Adam Hayes,2021).
1.10 Summary
Malaysian property prices have been steadily increasing. As a result, the most heavily
debated topic in recent years has been the factors that contribute to Malaysian housing prices
continuing to rise. This research focuses on the Malaysian housing market as well as
macroeconomic aspects. The goal of this study is to better understand the drivers of home
prices in Malaysia from macroeconomic perspectives, such as GDP, inflation rate, exchange
rate, and unemployment rate.
In summary, at the findings of the project, it will be possible to establish which

macroeconomic variables have the greatest impact on housing prices, as well as give a
guideline to house buyers or investors, as it will reveal the link between real estate prices and
macroeconomic issues. It is ideal for property buyers or investors to consider while intending
to purchase a home or make housing investment selections.
33
CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
A literature review is a succinct summary of selected research from secondary sources

that is written in an academic style. The findings of this investigation have been corroborated
by numerous earlier studies undertaken by other researchers in the field. Accordingly, the
purpose of this chapter is to provide a better understanding of and further information on the
determinant factor of Malaysian housing prices by reviewing prior studies in order to do so.
Prior to beginning the empirical analysis, we evaluated prior researchers' studies on the
determinants of housing prices in several nations, including the United States. A wide range of
variables, including microeconomic and macroeconomic aspects, were used by the researchers
in their study projects.
It is our goal in this chapter to investigate the relation between the independent variables
(GDP, lending rate, inflation rate, and unemployment rate) and the dependent
variable (Malaysian house price index). In addition, we will review the theories that earlier
researchers employed in the course of their studies.2.2 Review of the Literature
2.2.1 House price index

The house price index reflects price differences in the housing industry. It can also be
used as a guide for rent, indebtedness, and risk assessment for mortgage-backed securities-
backed housing loans (MBS). According to Abdul Rahman & Ridzuan (2020) based on the
home price index, the housing market has a strong positive link with economic growth.
Malaysians used the name Malaysian House Price Index (MHPI) to measure the average house
price, which was issued quarterly by the National Property Information Centre (NAPIC) and
established by the Valuation and Property Services Department (VPSD). According to NAPIC,
base year modifications represent changes in house prices based on buyer preferences and the
emergency new trends in the marketplace in order to manage Malaysian housing prices. The
MHPI is also utilised in real estate development to construct a national economic policy.
Overall, numerous scientists and academics have reached conclusions about the various
elements influencing housing values.
A study by Hassan F. Gholipour et al. (2019) found that the impact of foreign
investment on housing prices does not considerably increase the cost of acquiring a home.
34
According to the Joint Property and Valuation Departments (JPPH), the increase in HPI
between 1999 and 2014 has been on the rise since 1999. According to Sharen Kaur (2017),
despite the slowdown in the economy and the depreciation of the ringgit, the value of residential
property will not fall in the coming year. On the basis of the Property Guru's Consumer
Sentiment Survey, according to Pavither (2019), approximately 38% of customers are expected
to purchase a new home, while 15% were expected to place their attention on the secondary
market, such as an investment. A prospective home buyer will look for a neighbourhood with
adequate public transport infrastructure or other metropolitan settings that are close to their
place of employment. According to the results of the survey, high property costs are a cause of
fear for 59% of potential home buyers, followed by timing concerns, which account for 44%,
and inability to pay in advance for the initial payment, which accounts for 39%. Furthermore,
despite the significant discounts made by developers as a result of the market slump, according
to the Property Guru's Affordability Sentiment Index, nearly two-thirds of consumers are
dissatisfied with the current state of the housing market. It signifies that the student had a poor
grade of 37%. This occurred as a result of people's inability to cope with rising living costs,
limited income, and a significant financial burden associated with applying for home loans. As
a result, those in the generation Y demographic bracket who wish to purchase a property would
have a significant obstacle.
There have been a lot of studies in the past that looked at what factors caused the house
price index in that country. House prices go up when GDP and inflation go up, but
unemployment goes down when GDP and inflation go down (Peng Wong et al., 2012). When
the GDP rises, it means that the country's economy is doing well. At the same time, this tends
to push up the prices of everything else in the country to keep up with the rise in house prices.
In addition, when the general price level of goods and services rises, it means that the rise in
inflation makes house prices rise as well. On the other hand, when there are less real estate
activities, there will also be less jobs. In the long run, it could make the unemployment rate
rise. 1 percent less jobs means that house prices will drop by 1 percent, too, so the
unemployment rate will rise by 1 unit (Panagiotidis & Printzis, 2016). Real estate prices tend
to rise when the value of the RMB goes up. As a result, it could make the investor want to
invest money in home prices in the United States, which led to a rise in home prices as well
(Y.-C. Liu & Zhang, 2013).
35
2.3 Factors That Affect Housing Price
Malaysia has been able to benefit from the growth of the housing industry because it is
a growing country. With different projects and limits, Malaysian residential growth has kept
going even though it's been different. Conventional construction methods have been used by
the housing industry for a long time because of the growing demand for better homes, changes
in technology, rising construction costs, and strict climate rules. Even so, the suggestion of
innovation and creative creations have started to find their place in the world of business
(Hassan F. Gholipour et al., 2019).
Rapid economic growth has led to a rise in the demand for residential housing in
Malaysia's major cities in recent years. There has been a big rise in the cost of property in
Malaysia. Whether it's in big cities or small towns, and depending on the location, the prices
have gone up (Le, 2015). Over the last 10 years, the price of residential property in Malaysia
has gone up a lot. This has led to higher prices for people who live there. It doesn't matter that
house prices are close to all-time highs, because there are still a lot of questions about what
caused the irrational surge (Ong, 2013).
The lack of reliable and affordable housing has been cited as one of the country's most serious
concerns by prior governments and policy experts. House and land costs are skyrocketing,
making it almost impossible for even middle-class Malaysians to acquire a home (Osmadi et
al., 2015). According to Hao Guo et al. (2015), house price changes are inherent in regional
demography and regional economics, such as GDP, inflation rate, unemployment rate, and
lending rate, according to economic theory.
The government is conducting a variety of measures to minimize the fluctuation in

housing prices; nevertheless, the efficiency of the government's operations is still debatable.
Furthermore, the mentioned macroeconomic issues might still heavily impact the property
price (Lim Stephy, 2016).
These factors can support interested parties in dealing with the crisis and stabilising
property prices before the situation worsens. The present state of the housing market reflects
the current economic situation. As a result, if the housing market continues to rise at this rate,
it may become chaotic (Z. Liu et al., 2016).
36
In addition, housing price fluctuations have a substantial influence on the population's
and society's economic situations. The housing market is seeing an increase in demand (Neely,
2015). As a result of the imbalance between buyers and sellers, property prices are expected to
expand since there are more buyers than sellers. This eventually leads the situation to a self-
fulfilling speculative price bubble (Pillaiyan & Pillaiyan, 2015).
2.3.1 Gross Domestic Product (GDP)

A country's gross domestic product (GDP) is the total value of all the finished goods
and services that were made inside its borders during a certain time period. In this way, it serves
as an all-encompassing scorecard of a country's economic health. It is a broad measure of the
total amount of domestic production (Jason Fernando, 2021). The Gross Domestic Product
(GDP) is a way to measure how well a country is doing economically. The government,
policymakers, and people who buy and sell homes are all worried about their country's GDP.
When the GDP changes, it could lead to either financial gain or loss. During this time, the GDP
has an effect on the price of homes. When the country's economy is working well and growing,
it will have a bigger GDP, which will make the country's income level go up. In the long run,
real GDP is thought to be the main macroeconomic driver of house prices.
A study done by Ong (2013) found that macroeconomic factors were thought to be the
main factors that caused Malaysian house prices to move. The studies found that Malaysia's
GDP is a lot and a lot linked to the price of housing. He said that housing investment is part of
the GDP, and that when the GDP grows, the housing price index will go up. Gross domestic
product was found to have the strongest relationship with the house price index, but the results
could only account for 15.70 percent of the changes in the index. Since GDP is the main factor
in figuring out how much homes cost, he said that GDP was the main factor.
There are 44% of people who agree with Nuzul Azam Haron (2013) that a high gross
domestic product will make house prices go up. GDP growth has a big impact on the rise in
housing prices. As GDP grows, the price of a home will rise in the same way. This has led to
a rise in profits for prime construction industries and other businesses.
According to Wee et al. (1999), Sarawak's GDP changes are very closely linked to the
number of terraced, semi-detached, and long houses built in the state. According to them, the
number of terraces grows when the GDP rises. Having a home that isn't attached doesn't have
a big impact on lead levels. In other words, buyers are not influenced by the GDP when they
decide what to buy.
37
However, Pillaiyan & Pillaiyan (2015) said that real GDP was not the long-term driver
of house prices. She said that there is a real risk that house prices are in a bubble because GDP
was not identified as a driver of long-term house prices. She also said that house prices have
been out of line with things like the GDP rate for the last fifteen years.
As a result of a study by Trofimov et al. (2018), GDP and housing prices were found to
have a negative relationship. This was also found to be true for the house price index. The
researcher said that if there is a lot of economic growth for a long time, it can make people
want to build more housing, which can lead to an oversupply. He said that in 2005, there was
a lot of property overhang in Peninsular Malaysia, with 755,000 units of property still not sold.
Bank Negara Malaysia has seen similar oversupply in the past few years, especially in the
higher price range. A lack of housing in other areas means that lower- and middle-income
families are having to pay more for their homes, which makes it more difficult for them to
afford them.
2.3.2 Lending Rate

The lending rate, or base lending rate, is defined as the cost of a loan (Caroline Banton,
2021). It is often referred to as the interest rate, which is the amount charged by lenders as a
percentage of the amount loaned over a specified time period. The changes in lending rates will
have a direct impact on the housing price market in Malaysia. Teck-Hong, (2010) stated in his
analysis that base lending rates are the best important driver of residential housing activity in
Malaysia. According to previous research, there are several viewpoints regarding the
relationship between lending rates and housing prices.
The study conducted by Shi et al. (2014), shows that there is a positive correlation
between the lending rate and the price of a residence. Lee (2009) agreed with this conclusion
and stated that macroeconomic variables such as lending rates have a major influence on
property prices. Furthermore, Vries & Boelhouwer (2005) concur that macroeconomic factor
such as lending rates have a significant impact on house prices. This is because the lending rate
is linked to the cost of property, making it an important factor to consider when purchasing a
home (Wang & Zhang, 2014).
On the other hand, Ibrahim & Law (2014) found that interest rates are negatively related
to property prices. According to Holstein et al. (2013) and Choudhury (2014), mortgage rates
have a negative impact on housing prices. Higher lending rates typically increase the cost of
38
purchasing a home by requiring new housing loans, resulting in low demand for homes (Bank
Negara Malaysia, 2012). As a result, the base lending rate has a significant and inverse
relationship with housing activity.
In addition, Trofimov et al. (2018) included the base lending found that the variables
were negatively linked with residential property values, with a rise in the base lending rate
reducing house prices. The same finding was made by Ong (2013), who found that there was
no significant relationship between the lending rate and the house price. As observed in this
review, many experts expressed their opinions based on their findings on lending rates, and
some researchers had evidence of bias since the data analysis was performed from a particular
perspective rather than a broad view.
2.3.3 Inflation Rate

Inflation can be defined as a persistent rise in the price level throughout the whole
economy. Most products in the economy will increase in price during inflation, according to
Tsatsaronis & Zhu (2004). When it comes to inflation, however, housing is regarded from
slightly different viewpoints. In general, housing is seen as an excellent inflation hedge since
house prices grow in synch with inflation. On the other hand, like with inflation, we see the
growth in housing having a negative impact on the younger generation as house in Malaysia is
not a reality they can easily afford.
Theoretically, the price of a house is linked to the rate of inflation as higher rate of
inflation will eventually increase the cost of housing ownership. The rate of inflation is one of
the elements that affects housing price volatility since it has the potential to drive up property
prices in a long-term timeline (Hossain & Latif, 2009). Furthermore, inflation may have an
impact on housing prices in Malaysia since it affects people's expenditures, resulting lower
demand for housing.
This means that, if the price of products and services in the country continues to rise
drastically, people's desire for housing will fall, despite the fact that home is a vital and
fundamental asset for individuals. The majority of producers and sellers will take advantage of
the opportunity to raise the price of their goods or services in order to boost their profit margins
during periods of inflation. For example, if the cost of raw materials for building a house rises
dramatically, the cost of housing will rise as well (Ong, 2013).
Although some studies discovered a positive association between housing price and
inflation rate, these two variables also have a negative relationship. According to Hao Guo et
39
al. (2015), rising house prices can drive inflation in the short run, while rising housing prices
can control inflation in the long run. In other words, the influence of inflation on housing prices
is lower than the effect of housing prices on inflation, implying that housing prices can hedge
inflation over time (Kuang & Liu, 2015).
When home prices reach a particular level, investors will switch their capital to other
hedging instruments, providing this strategy to reduce future housing price increases. This may
be explained by the fact that some property buyers or foreign investors are unable to afford
investing in housing since they have discovered that more capital is required to purchase or
invest in property. Now that the demand for housing is lower than the supply, the price of
housing is levelling off. As a result, long-term increases in house prices will prevent inflation
in that country.
2.3.4 Unemployment Rate

The unemployment rate is the percentage of individuals who are unemployed but
actively looking for work. During an economic downturn, the unemployment rate will rise,
lowering demand for residential construction because the majority of people will be unable to
afford to buy a house. As a result, home prices have dropped (The Investopedia Team, 2021).
As the emergence of the COVID-19 pandemic in 2020, Terry Mrochko (2020) had
found the negative relationship between unemployment rate and housing prices in United
States. The Coronavirus has an impact on every type of organization. Apart from the
deteriorating economy, joblessness is a major problem in the United States. In this COVID-19
crisis, the United States must contend with two major interconnected issues: an increase in
unemployment and a decrease in income. It's clear that this will have an impact on the real
estate and housing markets in the United States. There will be very few real estate transactions
with low income and no support. Researchers have spoken in, and they predict that home
purchases would be slower, if not non-existent, as incomes are affected by the virus outbreak
in the United States. Cost-cutting and job losses have a huge impact on people's regular income;
as a result, renting is the best option right now. Aside from that, there are a scarcity of buyers
and sellers in the market. Consider this: if people are losing their jobs and are obviously going
through a difficult period, they are unlikely to invest their money in a house anytime soon.
People who still have steady employment and earnings are also concerned about the current
scenario. It will be a long time before they feel secure enough to invest in a house rather than
save an egg nest for unexpected situations. Because there is no demand, there is an excess of
40
supply, resulting in lower house prices; the market will not benefit the seller much. This is why
they have decided to remove their property off the market. Only those who are in desperate
need of a sale list their property.
According to Aspden (2012) and Abelson et al., (2005), unemployment rate are
inversely associated to the housing prices. When a country experiences economic troubles,
such as unemployment, the price of housing rises. In the long run, the housing market acts as
an equilibrium price based on the 'supply and demand' method. When the economy is in a deep
recession, housing prices fall due to the credit constraint, causing the unemployment rate to
rise. According to the researcher, impoverished regions have a higher impact than wealthier
regions. If the poorer region's citizens are unemployed, they are unable to pay their monthly
mortgage payments, and their houses are in risk of being repossessed. As a result, supply will
exceed demand for housing in certain areas. Hence, they will raise the demand for renting
rather than purchasing a home. Because of the greater unemployment rate, an increase in
housing supply will cause house prices to fall. It demonstrates a stronger relationship between
unemployment rate and housing prices.
Moreover, Gan & Zhang (2013) discovered a negative relationship between the
unemployment rate and house prices. On the demand side, if unemployment is high, preventing
a household from entering the housing market, it serves as a financial barrier because they
cannot obtain a mortgage. As a result, the number of buyers may be reduced. On the supply
side, an increase in the unemployment rate makes homeowners less eager to move or shift to a
new house because people's job instability is higher. They are concerned about the possibility
of being unemployed again in the future. As a result, it may lower the number of sellers. As a
consequence of fewer buyers and sellers, the housing market grows narrower, resulting in lower
matching quality on average. From that, house prices and sales volume would decline
dramatically. Thus, an increase in the unemployment rate lowers the sales price, decreases
transaction volume, and lengthens the time to sell in the housing market.
Based on a study of prior researchers' investigations, the majority of the results revealed
an inverse connection between the two factors. However, other researchers claim that there is
a positive correlation between unemployment rate and the housing prices. Using a cointegration
vector, Xu & Tang (2014) found a positive link between the unemployment rate and housing
prices. The researchers stated, however, that the result is still rational in analyzing the UK
property market because UK housing prices and unemployment rates are not clearly associated.
41
Aside from that, the housing sector typically hires labour from foreign countries because the
cost of recruiting them is significantly lower than the cost of hiring local labour. Despite of the
risks of the profession, the majority of local labour is unwilling or uninterested in working in
the housing industry.
Furthermore, according to Karamelikli et al. (2016), there is a positive relationship

between unemployment rate and the housing prices. An increase in the unemployment rate
affects the number of potential buyers and thus the demand for property investment. It could
also consider a signal impact capable of predicting the economic scenario in the near future.
As a result, these signal effects may have an impact on future house price predictions. Thus,
the housing industry has become a safer investment tool in terms of economic volatility, but
this has the unintended consequence that any negative economic activity might produce an
increase in predicted house prices. If the unemployment rate rises, the orientation of financial
assets such as real estate will shift to risk free sectors. As a result, when an economic slowdown
is forecast in the near future, investors will increase their investments in the housing industry.
The housing industry is one of the most important and least risky sectors. However, a decrease
in unemployment has no obvious impact on investor decisions. Any increase in unemployment
could be interpreted as a warning sign for the economy's future impact on the housing industry.
2.4 Summary
In summary, the relationship between the house price index and macroeconomic
variables has been described using literature from earlier researchers. However, it should be
highlighted that the researchers obtained varied results for the association between home prices
and macroeconomic variables. The reason for the inconsistent results could be that the
researchers conducted their investigations in different countries, resulting in different data and
policies. So far, Malaysian housing prices are nearing a peak, however the real factors
influencing housing prices remain unsolved to citizens. As a result, we would want to
investigate the significant connection between the house price index and the independent
variables in order to obtain a more accurate result when compared to prior findings by other
researchers.
Throughout the preceding discussion, those findings have said that there is a correlation
between the GDP, lending rate, inflation rate, unemployment rate, and house price index. This
42
chapter also looked at the theoretical framework that underpins the house prices index and its
determinants. The following chapter of this study will go over the methodology and technique
utilized to estimate the relationship between HPI and other macroeconomic variables for the
Malaysia study.
43
CHAPTER 3: RESEARCH METHODOLOGY
3.1 Introduction
The study will make use of secondary data gathered from a variety of sources, including
publications, websites, Thomson DataStream, Statista, World Bank data, Google Scholar, and
the IMF. From 2001 to 2020, housing prices were collected for a period of 20 years.
Furthermore, the goal of DataStream is to collect any effective and credible data related to this
research, which is the Malaysian housing price.
Analytical strategy can be discussed in detail in this chapter, which can include
sampling, research design, data collecting and analysis methodology, as well as variables, a
hypothesis statement, and an analysis methodology. This part also explores how to acquire
knowledge and where we should go in order to get knowledge. Additionally, a great deal of
information will be offered on the many sorts of variables that will be used in this study, which
will include both dependent and independent variables. Aside from that, the analysis design,
hypothesis statement, and analysis methodology will all be discussed in detail in this chapter.
3.2 Research Design
The research design can act as a guide for the researcher in choosing the best way to
collect the essential data for the study. According to Dr. Greener and Dr. Martelli (2008), a
research design is essentially an outline of a study topic that use data gathering methods to
establish the validity of a hypothesis or hypothesis-like proposition. The research design can
be classed as either quantitative or qualitative, depending on the results. An
investigational research method that is quantitative in nature is discovered to be more suited
for improving the degree of accuracy and giving an exceptional contribution to the study, given
the extent of this inquiry, than an exploratory research strategy. Alternatively, it can be utilised
to identify strategies and techniques that will be investigated further by the data. The goal of
the study, the forms of investigation, the level of research interference, the study environment,
the unit of analysis, and the time horizon will all be covered in this section.
3.2.1 Purpose of Study

In most cases, when performing a research study, the researcher will use exploratory,
descriptive, hypothesis testing, or case study analysis techniques. The purpose of this research
is to conduct a causal research analysis. Its purpose is to determine whether the independent
44
and dependent variables have a strong relationship with one another. Before deciding which
independent variable has the greatest impact on Malaysian housing prices, the hypothesis must
be defined so that the statistical test can be performed. Furthermore, it will clarify the economic
view of housing activity in Malaysia.
3.2.2 Types of Investigation

There are three types of investigation that are clarification, causal and correlation. Since
the variables are linked or connected, the type of investigation used in this analysis is referred
to as correlational. Correlation analysis is carried to figure out how two or more variables are
related. Using the Eviews, the degree of relationship is indicated as a correlation coefficient.
The independent variables in this research are macroeconomic factors, and the dependent
variable is the housing price index. As a result, the focus of this research is to determine and
discover the effect of the inflation rate, lending rate, unemployment rate, and GDP
toward Malaysian housing prices.
3.2.3 Researcher Interference

The level of interference of researchers in an analysis determines the researchers'
influence on the research outcomes. There are three types of interference that is minimal
interference, moderate interference, and excessive interference. It is classed as minimal
interference in this analysis because the researchers only use data for observation of housing
prices and observation of the effect of the macroeconomic variable. The change in housing
prices depends on macroeconomic variables. There is no change that has been made to the data
collected.
3.2.4 Study Setting

Study settings are divided into two types that is contrived, in which the study is
conducted in an artificial environment, and second non-contrived, in which the study is
conducted in the natural environment where work will be continued ordinarily. This is because
the researcher undertook a field of investigation in order to obtain the results. In addition, the
researcher conducted the study in a natural setting, using secondary data to discover more about
the cause-and-effect correlation between housing prices and macroeconomic variables.
3.2.5 Unit of Analysis

During the data analysis stage that follows, the unit of analysis is the level of
aggregation at which the data obtained has been aggregated. According to the study purpose,
the unit of analysis must be determined. In research, an important issue is one that researchers
45
are interested in including in their study. Individuals, dyads, groups, organisations, machines,
and other types of units of analysis are among the many types of analysis available. As an
example, any of the items on the list above could serve as a research unit in a study. To conduct
this study, only a few units of analysis are utilised, such as countries (since this study is
primarily concerned with Malaysia) and groups of people who are eligible to purchase a home.
3.2.6 Time Horizon

In this study, time horizons in this research are using time series data. A time series is
a set of data that tracks the evolution of a sample over time. A time series, in particular, enables
us to see what factors influence those variables from one period to the next. Time series analysis
can be useful when examining how an economic variable evolves over time. Data for all
variables was collected over a 20-year period, from 2001 to 2020, in order to determine the
effects.
3.3 Sampling
Samples are used to draw conclusions about populations. Since it is impossible to
collect data from the entire population, sampling is used. The samples are easier to collect data
from because they are cost-effective, practical, manageable, and efficient. In this study, taken
from sources such as Thomson Database, 20 years of data are used, spanning the years 2001 to
2020. The samples were taken in the Malaysia region, the United States, Europe, and Asia. The
data used as a sample is annual data.
3.4 Data Collection

Data collection is the process of collecting and analysing data on variables of interest
in a way that allows researchers to answer research questions, test hypotheses, and look at the
results. In Malaysia, this study is looking at factors that make up the housing price index. If
you want to figure out how macroeconomic variables affect things like GDP, lending rate,
inflation rate, and unemployment rate, you'd use these as the independent variables. Hypothesis
testing will be used to find out how the independent variables and the Malaysian housing price
index are related.
Researchers can also use secondary data, which is information that has already been gathered
from primary sources and made available to them. This data can be used in their own
46
studies. Secondary data would be used in this study because, unlike primary data, secondary
data can be calculated in units of measurement and produce quantifiable results, which is why
this study would use it. A lot of the data used in this study came from websites, journals, and
publications, but it was all based on secondary data. The research problems will be easier to
solve with the help of the information you get.
3.4.1 Thomson Reuters Datastream

First and foremost, this study employs Thomson Reuters Datastream to locate any
relevant data for use in the study, allowing UiTM to take benefit of their Datastream
subscription. Users of the Thomson Reuters Datastream programme can access a wide range
of detailed financial information in a workspace that is tailored to their needs and work habits.
This programme is called Datastream. Global financial and macroeconomic information site:
It has data on stocks, currencies, and other things for 175 countries, including Malaysia. It also
has data on 60 markets.
3.4.2 World Bank Open Data

In addition, we also obtain data for this research is from World Bank Open Data. It is a
database of time series data on a variety of topics that can be analyzed and visualized. In this
website, data on global growth is available for free and open access. It can easily be browsed
by country or indicator. Not only that, news, research and publications are also available to be
accessed on the website. It is a reliable website since the group is driven by professional
requirements in the collection, compilation, and distribution of data, and works closely with
the Bank's regions and Global Practices to ensure that all data users can have confidence in the
data's quality and reliability of this website (The World Bank, 2021).
3.4.3 Trading Economics

Trading Economics, which was used in was used in this research to find secondary data,
another piece of software was used in this research to gather information. Trading Economics
provides users with accurate information for 196 countries, including historical data and
forecasts for more than 20 million economic indicators, exchange rates, stock market indexes,
government bond yields, and commodity prices. Our information is derived from official
sources rather than third-party data suppliers, and our facts are reviewed for inconsistencies on
a regular basis. More than 200 countries have visited Trading Economics' website, which has
garnered more than 1 billion-page views.
47
3.4.4 Statista
Furthermore, Statista has been used as a secondary resource in this study as well. In the
field of market and consumer data, Statista is a German corporation that specialises. This
platform comprises more than 1,000,000 statistics on over 80,000 topics from over 22,500
sources across 170 different businesses, according to the corporation, and earns over €60
million in annual revenues.
3.4.5 International Monetary Fund (IMF)

Following that, data from the International Monetary Fund (IMF) is included in the
secondary data for this investigation. It is the International Monetary Fund's (IMF) job to ensure
that international financial stability and monetary cooperation are maintained. As a result, it
facilitates international trade, encourages employment and long-term economic growth, and
contributes to the reduction of global poverty. The International Monetary Fund (IMF) is
regulated and accountable to its 190-member countries.
3.4.6 Google Scholar

Then we received article data from Google Scholar, which was also helpful. Google
Scholar is a straightforward tool for conducting a comprehensive search for scholarly literature.
We can search across a wide range of disciplines and sources from a single location, including
articles, theses, books, abstracts, and court decisions from academic publishers, professional
associations, online repositories, institutions, and other web-based sources. In the area of
scholarly research, Google Scholar assists us in locating relevant work from around the world.
3.4.7 EViews
This study also used Eviews software to generate the findings. Eviews is an economic
modelling application that allows us to quickly and simply create statistics and forecasting
equations. Eviews allows us to evaluate time series, cross-section, and longitudinal data, among
other things. Aside from that, the software may generate graphs and tables to aid in the
presentation of clear data.
3.4.8 Department of Statistics Malaysia (DOSM)

Since the research is centered on the Malaysian house price index, statistics and
information are also obtained from the Department of Statistics Malaysia (DOSM). The
Department of Statistics Malaysia is a key government body tasked with gathering, analyzing,
and disseminating the most up-to-date statistics for tracking national economic and social
progress. The data is obtained not only for the house price index, but also for the variables that
48
influenced the housing price (GDP, lending rate, inflation rate, and unemployment rate), all of
which are obtained from the same sources.
3.5 Variables
A research variable is just the person, place, thing, or phenomena that you are
attempting to quantify. The best approach to illustrate the difference between a dependent
variable and an independent variable is to say that what the terms tell us about the variable
you're using signifies the value of each one. We will talk about the dependent variables and the
independent variables that interact in this session. In this section, we will look at how to define
and distinguish between dependent and independent variables, as well as their functions in the
analysis.
3.5.1 Dependent Variable

It is called a dependent variable (DV) because it is influenced by the other variables.
The dependent variable is the outcome variable that each person is going to be measuring. The
independent variable can be changed to make the dependent variable more or less important.
The dependent variable is the variable that is thought to be changed or influenced by the
independent variable in experiments where the independent variable forces and manipulates.
During this study, the dependent variable is the price of housing in Malaysia. House prices in
Malaysia are measured by how much they change each year. How does the house price index
(HPI) measure changes in the prices of residential housing? It shows the percentage change in
the prices of homes that have been sold since a certain start date (which has HPI of 100). The
index is based on the hedonic approach to price measurement and is based on multivariate
regression analysis with 2001 as the base year, which is how the index works.
49
3.5.2 Independent Variables
The independent variable (IV) modifies or adjusts the dependent variable, and is
assumed to have a direct positive or negative impact on the dependent variable. In this research,
they are four independent variables that are used to find if they are related to house price index
which are:
Table 2: Independent Variables
Independent Variables Measurements Abbreviation
Gross Domestic Product [(GDP₁ - GDP₀) / GDP₀] x 100 GDP
Lending rate The weighted standard rate LR

offered by commercial banks
on all loans in national
currency. The rate is weighted
by loan amounts.
Inflation rate [(Consumer price index₁ - IR

Consumer price index₀) /
Consumer price index₀] x 100
Unemployment Rate (Unemployed people / Labor UR

force) x 100
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3.6 Theoretical Framework
The construction of a theoretical framework on the determinants of house prices from

macroeconomic perspective in Malaysia offers readers with a better comprehension and a
clearer image of what the researcher is attempting to deliver in their study. The primary goal
of this is to calculate the significant relationship between the independent variables and
dependent variables.
INDEPENDENT VARIABLES DEPENDENT VARIABLES
Gross Domestic Product

(GDP)
Lending Rate
HOUSE PRICE INDEX
Inflation Rate
Unemployment Rate
Figure 7: Theoretical Framework
51
The four independent variables would have impacts on the dependent variable. The
macroeconomic factors included GDP, lending rate, inflation rate and unemployment rate,
which will affect the movement of the housing price in Malaysia.
52
3.7 Hypothesis Statement
A hypothesis is a statement that shows how two or more variables are related together.
A hypothesis is a scientific idea that isn't very clear. It's used to look into the relationship
between two or more variables even more. Two types of hypothesis are called the null
hypothesis and alternate hypothesis. Null hypothesis (H0) means that there isn't a link between
two variables or that there is no difference between two groups. While this is going on, the
alternative hypothesis (H1) is the opposite of the null hypothesis. It is a statement that shows
how two groups or variables are associated together or how they are linked. The solution can
be found by testing these hypotheses to find out how to solve the problem. For this reason, in
order to meet their research goals, the relationship between the housing price index and the
GDP, lending rate, inflation rate, and unemployment rate is found.
Gross Domestic Product (GDP)
H₀: Gross domestic product (GDP) has no significant relationship with the housing price index
in Malaysia.
H₁: Gross domestic product (GDP) has a significant relationship with the housing price index
in Malaysia.
Lending Rate
H₀: Lending rate has no significant relationship with the housing price index in Malaysia.
H₁: Lending rate has a significant relationship with the housing price index in Malaysia.
Inflation Rate
H₀: Inflation rate has no significant relationship with the housing price index in Malaysia.
H₁: Inflation rate has a significant relationship with the housing price index in Malaysia.
Unemployment Rate
H₀: Unemployment rate has no significant relationship with the housing price index in
Malaysia.
H₁: Unemployment rate has a significant relationship with the housing price index in Malaysia.
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3.8 Test Consideration for Data Analysis
In this research, the link between variables will also be employed to analyze the
macroeconomic determinants of Malaysian housing prices. Since this research will last 20
years, from 2001 to 2020, the use of time series data is justified. As a result, rather than
researching panel data, it is more appropriate and acceptable to evaluate time series data. Panel
data analysis necessitates a number of analyses, including descriptive analysis, correlation
analysis, and regression analysis.
3.8.1 Descriptive Analysis

Descriptive analysis is concerned with describing a phenomenon in terms of how we
believe something is. It makes an attempt to investigate situations in order to describe the
standard (Nicholas Walliaman, 2011). Descriptive Analysis examines what exists and attempts
to prepare the way for the discovery of new facts. It entails acquiring data about products,
people, individuals, events, and circumstances and then organizing, tabulating, depicting, and
describing the output.
Descriptive analysis, also known as descriptive analytics or descriptive statistics, is the

process of employing statistical techniques to describe or summarise a set of data. As one of
the primary types of data analysis, descriptive analysis is well-known for its capacity to derive
actionable insights from otherwise uninterpreted data.
Descriptive statistics include different types of variables (nominal, ordinal, interval, and
ratio), as well as measures of distribution, central tendency, dispersion/variation, and position,
which show how the data is spread out. When you look at a distribution, you see how many
times each value or range of values for a variable show up. In the simplest distribution, users
would write down every value of a variable and how many people had that value at each point
in time. If we look at the "central tendency" of a distribution, we can figure out where the
"centre" of that distribution is. A lot of people use the mean, median, and mode when they want
to figure out how many people in a group are similar. Dispersion refers to how far the values
are spread out around the centre of the group. The standard deviation, variance, minimum and
maximum variables, kurtosis, and skewness are some of the most common measures of
dispersion. Descriptive analysis also helps to figure out where a single value or response stands
in relation to other values or responses. There are a lot of things we can use to figure out where
we fall in the percentiles or the quartiles.
54
The method that we have used for this research is central tendency. The mean function
is used to find the average value of a bunch of data in order to discover the central tendency.
While median is used to discover the midpoint value of a set of data, it assumes that the data is
sorted from smallest to greatest series. The final one is mode. It is the value that appears the
most frequently in the sample (Kaur et al., 2018).
In terms of dispersion, variance and standard deviation are used to calculate the spread
or dispersion of raw data from its mean (Kaur et al., 2018). Nonetheless, because the standard
deviation is the square root of variance, the standard deviation value unit will be the same as
its original values. A smaller spread is really preferable since the data is more closely aligned,
resulting in a more linear relationship between the variables. The smallest and greatest values
in a sample are measured by the minimum and maximum variables. Kurtosis also calculates
the peak, outliers, and tails of a normal distribution. Skewness is a test of asymmetry in a
normal distribution, where the bell curve might be positively skewed (to the right), negatively
skewed (to the left), or not skewed at all (symmetrically).
3.8.2 Correlation Analysis

A correlation is a statistical measure of how two things are connected together. From
+1 to –1, there could be a possible correlation between two things. A zero correlation means
that there is no relationship between the variables, so there is no correlation. Next, a correlation
of –1 means that there is a perfect negative correlation, which means that when one variable
goes up, the other one goes down. A correlation of +1 means that both variables move in the
same direction at the same time (Kendra Cherry, 2021). A zero correlation means that the
correlation statistic didn't show that there was a relationship between the two variables.
Important to note: This does not mean that there is no relationship at all; it just means that there
is not a linear one. The abbreviation r = 0 is often used to show that there is no correlation.
For example, if the correlation between the house price index and unemployment rate
is 0, it means that unemployment rate has no effect towards house price index. In this instance,
researchers might explore more significant independent variables in order to acquire a more
accurate research result. The following is the hypothesis: The hypothesis is as below:
H0: ρ = 0
H1: ρ ≠ 0
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3.8.3 Regression Analysis
According to Studenmund (2014), regression analysis is a quantitative approach that
uses the quantification of a single equation for the purpose of explaining changes in one
variable (dependent variable) as a function of changes in another set of variables (independent
variable). It is essentially a quantification of economic theory to assess an entirely theoretical
economic correlation.
Panel Least Square
Panel least square regression is a method of identifying the concurrent effects of several
independent factors on a dependent variable by regressing a panel of data (Kenton, 2021). The
model may be extracted by converting the relation between the explanatory and explained
variables into a mathematical equation as follow:
Where:
Y = House Price Index
𝛽0 = Intercept / Constant
𝑋1 = Gross Domestic Product (GDP)
𝑋2 = Lending Rate
𝑋3 = Inflation Rate
𝑋4 = Unemployment Rate
𝑖 = Cross sectional data of geographic area in Malaysia
𝑡 = The research period from year 2001 to year 2021
𝜖𝑖𝑡 = Error term
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F-Test
The F-test is a type of technical hypothesis test. It is used to figure out how important
the relationship between the dependent and independent variables is overall. It is made to deal
with a null hypothesis with a lot of other hypotheses or a single hypothesis about a group of
coefficients. It is very common for researchers to use it when they want to compare fitted
statistical models to a data set, highlighting which model is best for the population.
H0: β1GDP = β2LR = β3IR = β4U = 0
H1: β1GDP ≠ β2LR ≠ β3IR = β4U ≠ 0
T-Test
The T-test is used to see if the independent variables are related to the dependent
variable. It also refers to the positive or negative linkages that exist between the gross domestic
product (GDP), the rate of inflation, the rate of lending, and the rate of unemployment. The test
needs an estimated standard deviation formulation return value. Take, for example, the lending
rate as a parameter and assume:
H0: β1LR = 0
H1: β1LR ≠ 0
Coefficient of Determination (R²)
When forecasting the result of a particular event, according to Andrew Bloomenthal

(2021), the coefficient of determination is a statistical measurement that assesses the extent to
which variations in one variable may be explained by changes in a second variable. Thus, the
R-squared coefficient, which is also known as the r-squared (or R2), is a measure of the strength
of the linear relationship between two variables. It is extensively depended upon by researchers
when conducting trend analysis. Another way of putting it is that it has an impact on how well
a formula can interpret and anticipate actual information.
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3.9 Summary
To summarise, this chapter discusses the sample and data gathered in order to suit the
template for this analysis. It also provides the analyses' theoretical framework and research
design, which explains the study's core mechanism. This chapter also delves deeper into
Thomson Reuters DataStream and Eviews methods and applications for delivering a wide
range of in-depth financial data. Aside from that, the research hypothesis, as well as the
research methodology, which comprises descriptive analysis, correlation analysis, and
regression analysis, are covered in Chapter 3.
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CHAPTER 4: RESEARCH ANALYSIS
4.1 Introduction
The purpose of this chapter is to investigate the relationship between macroeconomic

outlooks and house prices in Malaysia. As a result, the focus of this chapter will be on
analyzing, explaining, and reporting empirical findings utilizing the methods described in the
previous chapter. E-Views software is used to conduct all of these tests. E-Views software is
used to assess the relationship between independent and dependent variables. The descriptive
analysis, correlation analysis, and regression analysis are some of the approaches used in this
study. The results of each empirical test will be explained in detail, with comprehensive
interpretations. Finally, in this chapter, discussions of the primary findings of the test results
will be concluded, as well as a quick conclusion.
4.2 Descriptive Analysis
Descriptive analysis is an analysis of data that contains data which used to describe,
examine and summarize the main features of the data that be collected quantitatively.
Figure 8: Descriptive Analysis
The figure above displays the study descriptive statistics for the data used in this
analysis. Descriptive analysis is a temporary descriptive coefficient that describes a group of
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data that might be an analogy of the entire population or a subset of it. Descriptive analysis is
also a statistical method and type of analysis that helps describe, show and summarize data in
a constructive way. For this research, there are a total of 20 observations that have been studied.
The data comprises all of the independent and dependent variables for 20 years from 2001 to
2020. Figure 8 shows the average or mean, median, maximum, minimum, standard deviation,
skewness and kurtosis for the gross domestic product (GDP), lending rate (LR), inflation rate
(IR) and unemployment rate (UR).
A popular approach of describing central tendency is to utilise the mean or the average
of several values. The mean is a figure around which the entire data set is spread, and it is
calculated. To compute the mean, all of the values are added together and then divided by the
total number of values in the sample. However, standard deviation is used to quantify the
variability of square root variance, which serves as a gauge of variability in the distribution of
scores. In addition, standard deviation provides a more precise and detailed representation of
dispersion because an outlier can substantially increase the range of a distribution. It also
demonstrates the relationship between the set of scores and the mean of the sample.
For the dependent variable, the maximum amount for housing price is 13.40000 and a
minimum of 1.20000. The gap between the lowest and the highest HPI value is 12.20000. Also,
it has a mean of 5.358500. In addition, the standard deviation for housing price index is
3.467850 and the median for housing price index is 4.075000. The data skewness for HPI is
positive at 0.833979, suggesting that the tail on the right side of the curve is larger. The kurtosis
for the variable is 2.700874, which means that it is larger than the normal distribution and the
tail of the distribution is heavy with high degree of peak, it is known as leptokurtic kurtosis.
Moreover, for the first independent variable which is Gross Domestic Product (GDP),
the mean for this variable is 4.336000 that tells the average absolute distance of each data point
in the set. GDP has the highest value of median which is 5.310000 compared to the other
variables. Besides, the maximum value in the data for gross domestic product (GDP) is
7.420000 while the minimum value is -5.590000. GDP has the different value of 13.010000.
The standard deviation is 3.83715 and 71.12% (3.083715/4.336000) of the mean, where this
score is perceived as a large deviation among the other variables of the study. Moreover, the
data skewness for GDP is negative at -2.143030, indicating that the left side of the curve is
larger than the right side. The kurtosis for gross domestic product (GDP) is 6.894288, which is
a leptokurtic distribution with a larger kurtosis than the normal distribution and a heavy tail.
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Mean for inflation rate is 2.027765 and this is the lowest value of mean among the rest
of the variables. Inflation rate also has the lowest value for median which is 1.917613 compared
to the other variables. The greatest figure for the inflation rate reported is 5.440782 while the
lowest figure is -1.138702. The range for these two values is 6.579484. Inflation rate recorded
1.419198 as the standard deviation, square root of variance. In addition, the variable’s skewness
value is 0.255455, which is positively skewed to right distribution and the tail on the right side
of the curve is larger. The value of kurtosis for inflation rate is 3.670065 which means it is
larger than the normal distribution and indicates that the tail of the distribution is heavy with
high degree of peak and also known as leptokurtic.
The third independent variable is lending rate that have the highest amount of mean
compared to others which is 5.374306. The lending rate has a minimum value of 3.944425 and
a maximum value of 7.125003. This variable has a different value between minimum and
maximum of 3.180578. Next, the standard deviation of lending rate is 0.900601 while the
middle score for lending rate data is 4.965000. The data has a skewness of 0.400726, indicating
that the probability distribution is positive in value and the tail on the right side is larger than
the tail on the left. Furthermore, lending rate has a leptokurtic kurtosis that recorded at 1.862324
which means that the kurtosis is larger than the normal distribution.
For the last independent variable of unemployment rate, it is recorded that the mean
value is 3.379000 while the middle value for the data is 3.300000. Furthermore, the standard
deviation which defines as the square root of variance for unemployment rate is 0.337138,
which is the lowest value of standard deviation among other variables. The maximum figure in
the data for unemployment rate is 4.500000 while the minimum figure is 2.900000. These
values obtain a difference of 1.600000. Moreover, the data skewness for unemployment rate is
1.726493, indicating that the probability distribution is positive in value and the tail on the right
side of the curve is longer. Unemployment rate has the highest kurtosis value of 7.227795
which it can be interpreted that the curve is larger than normal distribution and the tail of the
distribution is heavy with a high degree of peak and is known as leptokurtic.
Overall, the highest value of mean is from the variable of lending rate which is 5.374306
while the lowest value is from inflation rate which is 2.027765. In terms of median, GDP
recorded the largest number which is 5.310000 and inflation rate recorded the smallest number
which is 1.917613. Housing price index has the highest value in the data set, 13.40000 and the
lowest value goes to GDP which is -5.590000. The highest standard deviation is 3.467850 from
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housing price index and the lowest standard deviation is from unemployment rate which
recorded at 0.337138. Other than that, the maximum value of skewness is unemployment rate
(1.726493) while the minimum value of skewness is from GDP (-2.143030). Last but not least,
unemployment rate holds the biggest value of kurtosis which is 7.227795 while lending rate
holds the smallest value of kurtosis at 1.862324.
4.3 Correlation Analysis
Covariance Analysis: Ordinary

Date: 12/13/21 Time: 16:01
Sample: 2001 2020
Included observations: 20
Correlation
t-Statistic
Probability HOUSING_... GDP INFLATION... LENDING_... UNEMPLOY...
HOUSING_PRICE_... 1.000000
-----
-----
GDP 0.424360 1.000000

1.988315 -----
0.0622 -----
INFLATION_RATE 0.283502 0.569850 1.000000

1.254256 2.942103 -----
0.2258 0.0087 -----
LENDING_RATE -0.473405 0.227319 0.231562 1.000000

-2.280182 0.990359 1.009882 -----
0.0350 0.3351 0.3259 -----
UNEMPLOYMENT... -0.678158 -0.779759 -0.571506 0.017085 1.000000

-3.914980 -5.284057 -2.954790 0.072496 -----
0.0010 0.0001 0.0085 0.9430 -----
Figure 9: Correlation Analysis
In its broadest definition, correlation is a measure of the strength of a connection

between the two variables (Schober et al., 2018). To put it another way, it is a measure of the
strength of the relationship between the dependent and independent variables. There may be a
perfect positive correlation between two variables, which would be represented by the number
1.0 (plus 1), or a perfect negative correlation between two variables, which would be
represented by the number -1.0. (minus 1). The correlation coefficient that is close to -1
indicates a strong negative association between the variables, whereas the correlation
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coefficient that is close to +1 indicates a strong positive relationship between the variables. It
is clear that there is no correlation between the variables when there is a correlation coefficient
of zero. The level of significance has been set at 5%, which is equal to 0.05.
Based on the figure, there is a moderate uphill linear relationship (r = 0.424360)

between housing price and GDP. For housing price and inflation rate, it indicates a weak uphill
linear relationship (r = 0.283502) while the relationship between housing price and lending rate
shows a different trend which is a moderate downhill linear relationship (r = -0.473405). In
term of housing price and unemployment rate, they also show a moderate downhill linear
relationship (r = -0.678158) as the value is close to -1. This indicate that all of these four-
independent variable (GDP, inflation rate, lending rate, unemployment rate) influence
dependant variable (housing price index).
In conclusion, the independent variables, which are lending rate and unemployment
rate, has significance relationship with housing price index due its value less than significant
level of 0.05. The other variables which are GDP and inflation rate has insignificant
relationship with housing price index because the p-value is more than 0.05. Furthermore,
although the lending rate and unemployment rate has a significant level, it has a strong negative
relationship with dependant variable which is housing price index. On the other hand, although
the GDP and inflation rate has an insignificant level, it has a strong positive relationship with
dependant variable which is housing price index.
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4.4 Regression Analysis
Regression analysis is a set of statistical methods for estimating relationships

between independent variables and a dependent variable. It indicates how the GDP, inflation
rate, lending rate, and unemployment rate can be used to explain the housing price index.
Dependent Variable: HOUSING_PRICE_INDEX

Method: Least Squares
Date: 12/13/21 Time: 16:08
Sample: 2001 2020
Included observations: 20
Variable Coefficient Std. Error t-Statistic Prob.
C 37.52088 9.542236 3.932085 0.0013

GDP 0.020390 0.290195 0.070264 0.9449
INFLATION_RATE 0.024680 0.464671 0.053112 0.9583
LENDING_RATE -1.804990 0.631676 -2.857462 0.0120
UNEMPLOYMENT_RATE -6.688449 2.686565 -2.489591 0.0250
R-squared 0.673434 Mean dependent var 5.358500

Adjusted R-squared 0.586350 S.D. dependent var 3.467850
S.E. of regression 2.230370 Akaike info criterion 4.654530
Sum squared resid 74.61828 Schwarz criterion 4.903463
Log likelihood -41.54530 Hannan-Quinn criter. 4.703125
F-statistic 7.733127 Durbin-Watson stat 1.045149
Prob(F-statistic) 0.001370
Figure 10: Regression Analysis
4.4.1 Coefficient of Determination (R²)

R² of 0.6734 shows that the variance in the dependent variable can be explained by the
variance in the independent variables to a significant degree by the variance in the independent
variables. The coefficient of determination (R²) of 67.34% indicates that the dependent
variable, the housing price index, has an impact on the independent variables, which are the
Gross Domestic Product (GDP), the inflation rate, the lending rate, and the unemployment rate.
The independent variables are unable to account for the remaining 32.66%. The presence of
additional independent factors that were not included in this analysis and which may further
enhance the regression equation suggests that there are additional independent variables.
Furthermore, the p-value of the F-statistic is 0.001370, which is used to test the overall
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significance of the regression model, allowing the researchers to reject the null hypothesis and
go on to the alternative hypothesis. The adjusted R² is, on the other hand, 0.586350, which is
less than the initial R² (0.586350). This shows that the variables in the regression model are
well-fitting and may be used to predict the index of the house price (HPI).
4.4.2 Unstandardized Beta Coefficients
Housing Price Index = 37.5209 +0.0204 GDP +0.02469 Inflation + -1.8050 Lending
+ -6.6884 Unemployment
They are the value of the regression equation function for predicting the dependent
variable from the independent variables. The column of estimates provides value for β0, β1, β2
for this equation. For each one-unit increase in Gross Domestics Product (GDP), the housing
price index will increase by 0.0204 units with holding other independent variables constant.
Furthermore, for each one-unit increase in inflation rate, the housing price index will increase
by 0.0247 units with holding other independent variables constant. In lending rate, the housing
price index will be decreased by 1.8050 units with holding another independent variable
constant. For unemployment rate, the housing price index will be decreased by 6.6884 units
with holding another independent variable constant.
4.4.3 F-TEST (ANOVA)
Analysis F-test is used to test the overall validity of the model or to test if any of the
independent variable (explanatory variables) is having linear relationship with the dependent
variable (response variable). According to the table above, the F-statistic is 0.001370. It is
significant based on the p-values which is below 0.05. Hence, the linear model is overall valid.
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4.4.4 Significance of a variable based on t-test using a p-value
X1 = GDP is insignificant (p-value is 0.9449)
X2 = Inflation rate is insignificant (p-value is 0.9583)
X3 = Lending rate is significant at 5% level (p-value is 0.0120)
X4 = Unemployment rate is significant at 5% level (p-value is 0.0250)
• Hypothesis 1
H₀₁: GDP has no relationship with housing price
HA₁: GDP has a relationship with housing price
• Hypothesis 2
H₀₂: Inflation rate has no relationship with housing price
HA₂: Inflation rate has a relationship with housing price
• Hypothesis 3
H₀₃: Lending rate has no relationship with housing price
HA₃: Lending rate has a relationship with housing price
• Hypothesis 4
H₀₄: Unemployment rate has no relationship with housing price
HA₄: Unemployment rate has a relationship with housing price
Based on t-test, we have enough evidence to reject the third and fourth null hypothesis
because the p-value is less than the chosen significance level, which is 0.05. Therefore, we can
conclude that lending rate and unemployment rate has strong relationship in influencing the
movement of housing price index in Malaysia.
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4.4.5 Parameter significance T- Test
• The result for GDP rate 0.9449 (94%), which is above the 5% significant level.
Therefore, GDP rate is insignificant. Hence, explain that GDP rate is negatively related
with house price index.
• The result for inflation rate 0.9583 (96%), which is above the 5% significant level.
Therefore, inflation rate is insignificant. Hence, explain that inflation rate is negatively
related with house price index.
• The result for lending rate 0.0120 (1.2%), which is below the 5% significant level.
Therefore, lending rate is significant. Hence, explain that lending rate is positively
related with house price index.
• The result for unemployment rate 0.0250 (2.5%), which is below the 5% significant
level. Therefore, unemployment rate is significant. Hence, explain that unemployment
rate is positively related with house price index.
4.4.6 Discussions
According to the regression analysis, it shows that there is insignificant and no vital of
gross domestic product (GDP) and inflation rate (IR) on housing price index in Malaysia but it
has positive relationship with the dependent variable. Whereas, lending rate (LR) and
unemployment rate (UR) on housing price index in Malaysia are significant but it has negative
relationship with the dependent variable.
Dietz (2015), Hao Guo et al. (2015), Kok et al. (2018), and Ong (2013) discovered that
Gross Domestic Product (GDP) influences the housing price index in Malaysia. When the
economy is growing, nations may be able to create new jobs. As a result, the nations have more
money to buy their new house, which leads to an increase in housing demand and, as a result,
a rise in housing prices.
The house price index has a negative relationship with the lending rate. When interest
rates are low, consumers are more likely to borrow more money and be able to afford to buy a
house. As a result, as the demand for housing increases, the price of housing will rise. Ong
(2013), Osmadi et al. (2015), and Pillaiyan & Pillaiyan (2015) are the researchers who worked
67
on this study, and they found that the lending rate is adversely connected with the house price
index. Several studies, like Ong (2013) and Nielsen (2004), have found that the higher the
property gains tax, the lower the housing prices. People can now afford to buy houses because
of the higher real property gains tax.
Apart from that, researchers Brooks & Tsolacos (2011), Gan & Zhang (2013), Rabe &
Taylor (2010) established a negative relation between unemployment rates and housing prices
index in Malaysia. It means that when unemployment rates are high, demand for residential
construction will be reduced because the majority of people cannot afford to buy a home. As a
result, housing prices will fall.
4.5 Summary
In this chapter, we employ Descriptive Analysis, Correlation Analysis and Regression

Analysis. The descriptive statistics of each variable are evaluated at the outset of the study, as
a starting point. The overall conclusion is that all of the empirical findings from the approaches
utilised in this study have been analysed and presented in the form of graphs and diagrams.
The findings of each of the tests in this chapter have been interpreted in a clear and exact
manner, as shown below for each test. Finally, the conclusion of the entire study will be
discussed in the following chapter.
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CHAPTER 5: CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is the purpose of this chapter to bring the research study's analysis to a close by
presenting a summary of the data acquired from it, as well as giving some recommendations
based on the findings. A comparison of the findings will be made with the objectives in order
to ascertain whether there is a relationship between the Malaysian housing price index and the
independent variables. The conclusions were drawn in accordance with the study's objectives,
research questions, and findings. In addition, the implications of these findings, as well as their
limitations and recommendations that follow, will be examined in further detail. The
recommendations are also meant to act as guidelines for future and additional research, with
the goal of improving results and ensuring more precise and accurate results.
5.2 Finding on Major Discussion
In the result from the test that carry out in the chapter 4, it can be conclude that only
two of the independent variables are significant which is lending rate (LR) and unemployment
rate (UR) while gross domestic product (GDP) and inflation rate (IR) are not significant.
5.2.1 Research Objective 1

Our first independent variables are Gross domestic Product (GDP). According to our
studies, it was discovered that the independent variable, which is GDP has an insignificant but
positive relationship with housing price index. Thus, this research supported studied made by
Pillaiyan & Pillaiyan (2015) in her analysis by identifying real GDP was not the long-term
driver of house prices. Housing price rate react conversely to the GDP rate, she justified that
there is a real danger that the house prices are in a bubble as GDP was not identified as a driver
of long-term house prices. She also stated that house prices have in the last fifteen years
deviated from economic fundamental such as GDP rate. In addition, the study conducted by
Trofimov et al. (2018) stated that, GDP and housing prices were found to have a negative
relationship and is the main determinants of house price index. The researcher explained that
continuous high economic growth may over stimulate residential construction and cause
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excessive residential construction, or in other words, create an oversupply. However, there are
also studied found that that GDP is significantly and positively correlated with housing price
in Malaysia. A studied made by Ong (2013) where macroeconomic factors were seen to be the
determining factors on the movement of house prices in Malaysia. He stated that housing
investment is part of the GDP and increase of GDP will affected housing price index. At last,
for our final research, we concluded that GDP has an insignificant relationship with housing
price index. This means that the null hypothesis had to be accepted for the independent variable
of GDP, which is:
H₀: There is no significant relationship between GDP and the house price index in Malaysia.
The relationship between the GDP and house price index is negative.

The study of the research found that there is a significant but negative relationship
between the lending rate and the housing price index. It is proved by past research conducted
by Ok et al. (2019), who found that there is a positive correlation between real estate prices and
lending rates in both developed and developing countries. Besides that, Xu and Tang (2014)
examined the determinates of UK house prices and found that lending rate has a positive impact
on house prices. In addition, Lee (2009), Shi et al. (2014) and Vries & Boelhouwer (2005) also
supported this conclusion and stated that macroeconomic variables such as lending rates have
a major influence on property prices. This is because the lending rate is linked to the cost of
property, making it an important factor to consider when purchasing a home (Wang & Zhang,
2014). On the other hand, Ibrahim and Law (2014) found that lending rate are negatively
related to housing prices. According to Choudhury (2014) and Holstein et al. (2013), lending
rates have a negative impact on housing prices. Higher lending rates typically increase the cost
of purchasing a home by requiring new housing loans, resulting in low demand for homes
(Bank Negara Malaysia, 2012). Finally, for our final research, we concluded that lending rate
has a significant relationship with housing price index. In addition, the findings of this study
are consistent with and supported by previous studies. Thus, the objective of identifying the
relationship between unemployment rate and housing prices was achieved and had to be
supported by the hypothesis:
H₁: There is a significant relationship between the lending rate and the housing price index in
Malaysia. The relationship between the dependant and independent variables is positive.
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Our third independent variable is inflation rate. In this research study, it shows that
inflation rate has insignificant but positive relationship with dependent variable which is
housing price index. Based on the past research by Hao Guo et al. (2015), these two variables
react conversely to each other, showing negative relationship using the theory of rising house
prices drive inflation in the short run, while rising housing prices can control inflation in the
long run. In other words, the influence of inflation on housing prices is lower than the effect of
housing prices on inflation, implying that housing prices can hedge inflation over time (Kuang
& Liu, 2015). When home prices reach a particular level, investors will switch their capital to
other hedging instruments, providing this strategy to reduce future housing price increases.
Inversely, although some studies discovered a positive relationship between housing price and
inflation rate, these two variables also have a negative relationship. According to Hao Guo et
al. (2015), rising house prices can drive inflation in the short run, while rising housing prices
can control inflation in the long run. In other words, the influence of inflation on housing prices
is lower than the effect of housing prices on inflation, implying that housing prices can hedge
inflation over time (Kuang & Liu, 2015). By this, the objective of identifying the relationship
between inflation rate and housing price index was achieved as the result for this research is
also in line and proven by past research, implying that null hypothesis was supported. The
hypothesis for the objective as follows:
H₀: There is no significant relationship between inflation rate and the housing price index in
Malaysia. The relationship between the dependent and independent variable is negative.

The study of this research shows that it has a negative relationship of unemployment
rate with housing price but they are significant to each other. This finding is consistent with
empirical findings from various journal articles such as Xu & Tang (2014) found a positive
link between the unemployment rate and housing prices. The researchers stated, however, that
the result is still rational in analyzing the UK property market because UK housing prices and
unemployment rates are not clearly associated. Other than that, Karamelikli et al. (2016) also
state that there is a positive relationship between unemployment rate and the housing prices.
An increase in the unemployment rate affects the number of potential buyers and thus the
demand for property investment. It could also consider a signal impact capable of predicting
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the economic scenario in the near future. As a result, these signal effects may have an impact
on future house price predictions. Nevertheless, according to some prior study finds that
unemployment rate is not significant due to economic troubles based on the ‘supply and
demand’ method who are from Abelson et al. (2005), Aspden (2012) and Gan & Zhang (2013).
Thus, the objective of identifying the relationship between unemployment rate and housing
prices was achieved and had to be supported by the hypothesis:
H₁: There is a significant relationship between the unemployment rate and the housing price
index in Malaysia. The relationship between the dependant and independent variables is
negative.
5.3 Policy implication
The purpose of this paper is to provide foreign investors, local house purchasers,
policymakers, and property developers with a thorough understanding of which
macroeconomic factors will affect housing prices in Malaysia. Malaysia's house prices have
reached historic highs in recent years, prompting many analysts to forecast when the property
bubble will collapse.
Furthermore, it is discovered that there is a positive relationship, but it is not significant,

between the inflation rate and housing prices in Malaysia. Because of this, it is critical for the
government and policymakers to acknowledge that inflation rate may be one of the most
important elements that will have an impact on the growth in housing prices. Hence , the
government should devote greater resources to the price stability policies. In economic terms,
it indicates that the entire level of prices in an economy does not vary significantly over a long
period of time. As a result, the government should allocate more resources to the promotion of
stable pricing in order to avoid a spike in inflation. This is due to the fact that inflation has been
highlighted as a potentially negative factor that has the ability to hinder economic development.
Over this, price stability is beneficial in ensuring that an acceptable level of financial and
economic activity is maintained. In conclusion, price stability policy is a good instrument for
bringing inflation down and keeping it from rising further.
The findings clearly reveal that the lending rate in Malaysia has a negative relationship
with the house price. Since the transaction is so substantial, most buyers prefer to borrow
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money from a bank rather than pay cash for the house. It is normal for rising lending rates to
result in greater borrowing costs, resulting in a significant decline in home demand. The Bank
Negara Malaysia (BNM) is in charge of keeping the lending rate in Malaysia under control. As
a result, BNM should exercise caution while formulating and implementing monetary policy
in order to keep Malaysia's housing prices stable. The lending rate, which would affect the
foreign investor's monthly instalment, should also be considered.
To create additional job opportunities, the government should devise a plan to promote
more foreign direct investment into our country. When job opportunities improve, such citizens
will have an easier time finding work. As a result, the unemployment rate will steadily decrease,
resulting in an increase in income. When one's salary rises, so does the affordability of owning
a home. Apart from that, developers should work with authorities to keep housing prices under
control and take all necessary corrective action to avoid market price discrimination.
Developers should set housing prices based on different income groups of buyers. Furthermore,
the government can provide subsidies to developers to build low-cost housing projects or
provide housing allowances to lower-income buyers.
Malaysia, as a growing country, has seen a surge in housing demand, particularly in

urban areas, as a result of its rapid economic development in recent years. The Malaysian
government recognizes that housing is a basic requirement for all citizens (Ong, 2013). As a
result, the government is working hard to establish a variety of policies in order to meet the
goal. Moreover, due to the rapid growth in housing prices, new graduate households and
households with lower- and middle-income levels may be unable to purchase a home. Many
citizens are concerned that the high yearly growth in house prices is incompatible with annual
income, as the increase in house prices is faster than the increase in household income. In fact,
the majority of individuals are worried about dealing with the high cost of residential buildings
(Ong & Chang, 2013).
Despite the government's efforts to cut housing prices, such as the 1Malaysia People's
Housing Programme (PR1MA) and MyDeposit, the majority of Malaysians, particularly those
in the low- and middle-income groups, are unable to pay the current housing prices. As a result,
the government must devote more resources to creating housing policies that prioritize the
younger generation. The government may choose to focus on improving the efficiency of the
property market. It can be done through increasing market transparency. Transparency can be
improved by making property market transaction data available in a timely and reliable manner.
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Developers and government officials should work together to address the problem of
rising house price. When property prices are excessively high, developers' cash flow and profits
are harmed since the units are difficult to afford. The developers should employ the "small
profit, quick turnover" strategy to reduce their profit margin and prevent the oversupply
problem.
5.4 Limitation of Study
There are a few limitations in this paper that can be noticed throughout it. It is true that
obtaining excellent research without any limitations during the study process is challenging.
First and foremost, house prices are influenced not only by macroeconomic factors, but also by
microeconomic factors such as education and personal income. However, we only examine
macroeconomic variables in this research, which may not provide the complete picture of what
drives housing prices to rise.
Furthermore, the information we used in this study was derived from the entire
Malaysian housing market. If the researchers want to look at a case study from a certain
geographical region in Malaysia, this could lead to inaccuracy. For example, if the same
independent variables are utilized, the total housing price may rise, but the housing price in
particular states, such as Perak and Perlis, may decline. As a result, the findings of this study
may be sufficient if applied to the entire Malaysian housing market, but they are not detailed
enough to be applied to a single geographic area.
Lastly, in this research, we solely use secondary data and ignore the primary data
obtained from the Malaysian survey. Since a bigger sample size yields more reliable results,
primary data gathering may give us with additional information from a large number of
respondents.
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5.5 Recommendation
Research recommendations offer suggestions for how this study may be improved, as
well as what future studies should do to get a better outcome. The major goal of the suggestion
is to talk about the gaps and uncertainties found during the study and give guidance for future
research (Brown et al., 2006). It is an essential component of a project since it may prevent
similar errors from occurring in the future and give more accurate results for future study.
a) Utilising microeconomic factors
To begin, researchers are strongly encouraged to do further research utilising

microeconomic factors such as personal income and educational attainment. Individuals'
personal income, for example, can have an impact on whether or not they purchase a property.
Individuals with a higher salary level have a higher likelihood of owning a home than those
with a lower income level. Personal income and house prices are linked, according to Tsai &
Peng (2011), since housing demand is influenced by personal income. Given that home prices
are influenced by more than only macroeconomic factors, we may integrate more
microeconomic variables to improve the outcome. Researchers may integrate new factors that
haven't been tested previously in a future study to improve the model. However, the variables
chosen to be tested must be relevant to the investigation, and their qualities must be significant.
b) Refer at residential homes
Following that, we solely look at residential homes in our research. Future scholars can
incorporate industrial or commercial property into their study to determine the impact of
macroeconomic factors. Industrial property is used exclusively for industrial purposes, whereas
commercial property is utilised purely for commercial purposes (Chen, 2021). As a result,
future scholars are urged to look into the link and impact of macroeconomic variables on
different categories of real estate. The results gathered allow the government and policymakers
to take prompt action to protect the economy and individuals.
c) Do home pricing study based on diverse geographical locations
Furthermore, future researchers can do home pricing study based on diverse

geographical locations. They can focus their research in either a rural or urban context to
75
determine the disparities in house price setting. Of course, a good location might mean various
things to different individuals, but there are also quantifiable criteria that influence a home's
worth. They may not be able to acquire a property with all of these qualities depending on your
specific needs and preferences (Tara Struyk, 2021). For example, housing in Perak is far less
expensive than home in Penang. Penang's house prices may rise year after year however,
Kampar's housing prices will rise slowly. The performance of house prices in different
locations will result in varied home price changes in Malaysia. The study's findings will be
more accurate in making detailed predictions about the success of the property market in certain
places.
d) Using different sorts of study methods
Besides, future researchers may propose for the use of a variety of data collection
methods, such as primary data collection, to gather information. Primary data collection is
defined as the collection of raw data at the point of origination or collection. Essentially, it is
the process of acquiring original data by a researcher with the intention of conducting study.
The methods for acquiring data can be split into two categories: qualitative research and
quantitative data collection methods (Salkind, 2010). Local Malaysians provide information
for primary research, which is conducted in their own language. It includes interviews, surveys,
observations, and questionnaires, among other things. It is possible to improve the study's
results by utilising two different types of procedures. Additionally, available to us is the
opportunity to ask recommendations or thoughts from residents regarding our research or the
Malaysian property market. Primary data collection also allows us to get more information
from a larger number of respondents, as a larger sample size delivers the desired findings when
conducting primary data collection.
e) Reducing lending rate & unemployment
Finally, we solely look at recommendation for significant data which is unemployment

and lending rate which related to policymakers. For unemployment, the Ministry of Human
Resources must evaluate the minimum wages to ensure that all citizens have an affordable
wage to acquire at least one house for one family. They also should use house price index
indicator as one primary indicator to determine minimum wages (Cengiz et al., 2019). At the
same time, Ministry should take an action to reduced unemployment rate to ensure that all
citizen in Malaysia has a job to afford house. Next is lending rate which is also come out with
a significant data. Central Bank of Malaysia and Ministry of Housing and Local Government
76
as a policymakers of lending rate should evaluate the rule of lending rate by using house price
index as one of the major indicators. This is because more than 70% of housing loans accorded
to first-time buyers and close to two-thirds of new housing loans channelled to the purchase of
houses below RM500,000 (Su Ling et al., 2017). In that case, they should give discount rate
for the first-time house loan buyer. The low lending rate will help to increase the affordability
a person to have a house.
5.6 Conclusion
This chapter will provide an overview of each chapter from the first to the fourth. This
study attempts to find the relationship between the gross domestic product (GDP), lending rate
(LR), inflation rate (IR) and unemployment rate (UR) with housing price index in Malaysia. It
has been examined with the annual data covering 2001 to 2020. Ordinary Least Square (OLS)
method were employed in this study showed that lending rate and unemployment rate were
found to have negative relationship while GDP and lending rate has a positive relationship with
house price index. Overall, despite the data sets' imperfection in meeting the classical
assumption criteria and the hypotheses, the outcomes of the OLS test were found to be quite
promising.
In conclusion, chapter 1 illustrates why the price of housing in Malaysia now is

substantially more than it was a few decades ago. It has made it harder for households with
low- and medium-income levels to purchase a home as house and land prices have risen fast.
Furthermore, the depreciation of the domestic currency will raise housing demand from foreign
investors, who will outbid domestic buyers for low-cost assets. As a result, this issue
unintentionally drew the attention of Malaysian citizens, prompting us to investigate the
macroeconomic factors that influence the rise in house prices.
In addition, chapter 2 explains the relationship between HPI and macroeconomic

variables using literature from earlier scholars. According to the review, it's possible that it'll
come up with a different outcome than previous researchers who looked at the relationship
between house prices and macroeconomic variables. The explanation for the disparity in the
results could be that the researchers conducted their investigations in different countries,
resulting in different data and policies. As a result, determining the interrelationship between
77
macroeconomic variables and housing price in Malaysia is critical in order to obtain a precise
conclusion that can be compared to past research findings.
Chapter 3 goes over all of the methodologies and statistical tests that will be used in
this research. Each methodology's ideas have been carefully described and elaborated. Firstly,
descriptive analysis is carried out for describing or summarizing a set of data using statistical
techniques. Second, this study used correlation analysis to measure the relationship strength
between the dependent and independent variables. There could be a perfect positive correlation
between two variables, represented by 1.0 (plus 1) or a perfect negative correlation, which
would be -1.0 (minus 1). As the correlation value of 0, it indicates that there is no relationship
between the variables. Moreover, regression analysis has been run in explaining the changes in
one variable (dependent variable) as a function of changes in another set of variables
(independent variable). This study also uses a variety types of data collection such as Thomson
Reuters Datastream, EViews, Google Scholar, Trading Economics and many more.
In the chapter 4, a series of test have been conducted and the results we obtain are
clearly explained. Initially, this study has overviewed the descriptive statistics of all the
measured variable and controlled variables. This analysis includes the mean, median,
maximum, minimum, standard deviation, skewness and kurtosis for the gross domestic product
(GDP), lending rate (LR), inflation rate (IR) and unemployment rate (UR) for 20 observations
from 2001 to 2020. Next, we also conduct the correlation analysis that measure the relationship
strength between the dependent and independent variables. From the results, it reveals that only
lending rate and unemployment rate are significant with housing price index has significance
relationship with housing price index due its value less than significant level of 0.05 but both
of the variables have negative relationship with housing price index. Conversely, GDP and
inflation rate are insignificant with housing price index because the level of significant is more
than 0.05, but both of the variables shows positive relationship with the dependent variables.
Lastly, we proceed to regression analysis test to explain relationship between dependent
variable and one independent variable through the quantification of one or more equation.
According to significance of a variable based on t-test using a p-value, we had obtained the
results that GDP and inflation rate were insignificant while lending rate and unemployment
rate were significant referring to the significance level of 5%. Thus, it can be concluded that
only lending rate and unemployment rate has strong relationship in influencing the movement
of housing price index in Malaysia.
78
To sum up, the cost of housing in Malaysia now is substantially higher than it was a
few decades ago. This conclusion found that unemployment rate and lending rate are
significant determinants of Malaysia's house price index, while GDP and inflation rate are
insignificant, based on empirical results and analysis. This chapter also includes a number of
policies and implications. Furthermore, limitations and recommendations are highlighted for
future researchers who will be working on the same chapter.
5.7 Summary
Finally, this is the last part of the research study. To conclude, this chapter provides
explanations for the results that have been acquired, as well as discussions on major findings
concerning the results. Malaysian housing prices are substantially higher today than they were
in previous decades. Based on the empirical findings and discussion, this study discovered that
the lending rate and the unemployment rate are significant determinants of Malaysia's house
price index, whereas the Gross Domestic Product (GDP) and inflation rate are classified as
insignificant. Furthermore, through diagnostic checking, the model of this study is clear from
econometrics flaws. Since a consequence, the findings of this study are dependable and
trustworthy, as various policies and implications are presented in this study. Furthermore,
limitation and recommendation are discussed for researcher who will be doing the relevant
topic in the future.
79
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FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION (HONS) FINANCE

QUANTITATIVE RESEARCH METHOD (MGT646)

THE MACROECONOMIC DETERMINANTS OF HOUSING PRICE IN

NO. STUDENT’S NAME MATRIC NO.

1. LUQMANUL HAKIM BIN JOHARI 2020977427

2. MUHAMMAD NAQIB BIN ZAINUDDIN 2020964523

3. MUHAMMAD NUR AFFANDI BIN JA’AFFAR 2020970549

4. MUHAMMAD NURIZZ HAKIM BIN RAZALI 2020974333

5. NURUL AMIRA BINTI BAZLI 2020974971

DR. AHMAD SYAHMI BIN AHMAD FADZIL

Name and Student Luqmanul Hakim Bin Johari (2020977427)

Muhammad Nur Affandi Bin Ja'affar (2020970549)

Muhammad Nurizz Hakim Bin Razali (2020974333)

Nurul Amira Binti Bazli (2020974971)

Programme Bachelor of Business Administration (Hons) Finance

Faculty Business Administration

Dissertation Title The Macroeconomic Determinants of Housing Prices in Malaysia

Signature of LUQMAN, NAQIB, AFFANDI, HAKIM, AMIRA

Date OCTOBER 2021

AUTHOR’S DECLARATION .............................................................................................. 2

TABLE OF CONTENTS ...................................................................................................... 5

LIST OF TABLES ................................................................................................................ 9

LIST OF FIGURES ............................................................................................................ 10

CHAPTER 1: INTRODUCTION ........................................................................................ 11

1.1 Introduction .......................................................................................................... 11

1.2 Background of Study ............................................................................................ 13

1.2.1 Property Market in Malaysia ............................................................................... 15

1.2.2 Macroeconomic Factor That Affect House Price Index ........................................ 18

1.2.2.1 Gross Domestic Product (GDP) in Malaysia.................................................. 18

1.2.2.2 Lending Rate in Malaysia ............................................................................. 19

1.2.2.3 Inflation Rate in Malaysia ............................................................................. 20

1.2.2.4 Unemployment Rate in Malaysia .................................................................. 22

1.3 Problem Statement ..................................................................................................... 25

1.4 Research Questions ............................................................................................... 27

1.5 Research Objectives .............................................................................................. 27

1.6 Significance of Study ............................................................................................ 28

1.6.1 Investors Access .................................................................................................. 28

1.6.2 Government Policy .............................................................................................. 28

1.6.3 Housing Developers ............................................................................................ 29

1.7 Scope of Study ...................................................................................................... 30

1.8 Limitation of Study ............................................................................................... 30

1.9 Definition of Terms ............................................................................................... 31

CHAPTER 2: LITERATURE REVIEW ............................................................................. 34

2.1 Introduction ............................................................................................................... 34

2.2.1 House price index ................................................................................................ 34

2.3 Factors That Affect Housing Price ............................................................................. 36

2.3.1 Gross Domestic Product (GDP) ........................................................................... 37

2.3.2 Lending Rate ....................................................................................................... 38

2.3.3 Inflation Rate ...................................................................................................... 39

2.3.4 Unemployment Rate ............................................................................................ 40

2.4 Summary ................................................................................................................... 42

CHAPTER 3: RESEARCH METHODOLOGY .................................................................. 44

3.1 Introduction ............................................................................................................... 44

3.2 Research Design ........................................................................................................ 44

3.2.1 Purpose of Study ................................................................................................. 44

3.2.2 Types of Investigation ......................................................................................... 45

3.2.3 Researcher Interference ....................................................................................... 45

3.2.4 Study Setting ....................................................................................................... 45

3.2.5 Unit of Analysis .................................................................................................. 45

3.2.6 Time Horizon ...................................................................................................... 46

3.3 Sampling ................................................................................................................... 46

3.4 Data Collection .......................................................................................................... 46