Factors Affecting Housing Prices In Malaysia - Essay.

Since, 2012, the increase in house prices in Malaysia has outstripped the rise in income levels. Consequently, prevailing median house prices are beyond the reach of most Malaysians. This is primarily attributable to a gross mismatch between housing supply and demand amid diverging expectations between households and developers. The issue has been compounded by the fact that the distribution of new housing supply has been concentrated in the higher-priced categories. Analyze about the FIVE demand factors and FIVE supply factors that influence house prices in Malaysia. You may include justification from relevant journal articles to make your argument stronger.

Demand Factors

There are various demand and supply factors, which are known to affect the housing prices of Malaysia. The past couple of years have experienced a large fluctuation in the demand and supply of the housing market in Malaysia. The Malaysian economy is known to be the third largest in the Southeast Asia. It is also the 38^th largest economy in the world.  The labour productivity of Malaysia is also known to be known to higher than the neighbouring countries. The citizens of Malaysia are known to lead an affluent lifestyle compared to the neighbouring countries. The reason behind this is the low national income tax, low cost of the local food, transport fuel and other essential households. In spite of all these, there have been various fluctuations in the housing markets of Malaysia. There are various supply and demand factors that have known to affect the housing prices, which are described below.

When there will be rise in the rate of interest, the mortgage lenders are known to increase the price. As the rate of interest is higher in nature, it will be making home buying less attractive in nature. As the majority of the home owners in Malaysia will be becoming variable mortgages, a small change in the rate of interest rate will be having a huge impact on the affordability of buying the house. Therefore, when the interest rate will be rising, people will be buying less house and therefore the demand for the houses in Malaysia will decrease. For this reason, the price will be decreasing as a result of rise in the interest rate.

The growth of the economy also affects the demand for housing in Malaysia. When the economy is doing well as the gross domestic product will be increasing, people will have more money in hand and therefore will demand more house. In case of the economic boom, the demand for houses will be growing rapidly which also states that houses will be income elastic in nature.

Demographics are those data, which will be describing the composition of the population, gender, income, migration and the growth of the population. These factors will be affecting the real estate price. Large shifts in the demographics of the nation will be having an impact on the trend of real estate. Baby boomers and the adults who are at the retirement age will be affecting the demand of the houses and therefore will be affecting the prices of the housing market. The increase in the older population will lead to higher demand of the houses and this will lead to rise in prices.

Interest Rates

The demand of the house will rise and therefore the prices will be rising when homes are built on the popular location. The majority of the people will want to live in places close to where they work, malls, shops and near to those places where they can enjoy themselves. These will naturally lead to high demand for the property prices.  When the houses will be located at the good location, the demand will automatically rise and therefore the price will also be rising.

Another factor that will be affecting the demand of the housing prices of Malaysia is the income of the buyers. When the consumers will be rich and will be having more money, the demand for houses will automatically rise. Therefore, a rise in the income of the consumers will lead to increase in demand for the houses in Malaysia. The increase in demand will therefore lead to rise in price.

The supply side factors that will be affecting the housing market of Malaysia are:

The expectation of the Malaysian producer is one of the factors that will be affecting the supply in the housing market.  When the producers expect that the price of houses will be rising in the future then at that time, they will not supply the houses. For this reason, the supply will be decreasing and the price will increase in case of the housing market. If the price of the housing market will be increasing in future, they will prefer to sell many houses in future since at that time they can earn more profit.

Another factor that affects the housing price is the number of subsidies and taxes imposed. Both the subsidies as well as the taxes are known to have a huge impact on the housing prices of Malaysia.  When the taxes, which are imposed by the Malaysian government, increase, the production cost will be increasing too. For this reason, a smaller number of houses will be supplied and produced in Malaysia.

On the other hand, when the government provides enough subsidies to the housing market, it will help the supplier in the production of houses. The subsidies will be then decreasing the production cost of the houses.  The subsidies will be declining the production cost, increasing in profits and therefore will be increasing the supply.

The inputs of the housing market are the raw materials, labour, licensing fees, utilities and the other necessary things which are known to affect the housing market of Malaysia. When the prices of one or more than one inputs will be rising, the supply of houses will decrease since the producer will have spent more on the housing materials. For this reason, they will be earning only small profit, which will lead to reduction in the supply of house. On the other hand, when the price of the inputs or the raw materials will be declining, the producers will be supplying more houses for sale.

Economic Growth

The analysis of the five years trend of the Malaysian economy shows that the economy will be experiencing increased activities in the construction sectors and in the capital markets in the future market.  This particular factor will be affecting the supply of the of the houses in Malaysia. the future trend of the housing price will be shifting the supply curve to the right as the quantity of houses supplied will be increasing in nature. the size of the society will also have a parallel relationship with the quantity demanded.

This particular factor is quite similar to the number of consumers in Malaysia. when the number of sellers in the housing market will increase, it will automatically increase the supply of houses. With the rise in the numbers of sellers selling houses in Malaysia, the supply of the houses will be increasing. This will therefore, affect the housing prices in Malaysia.

Conclusion

The above points mentioned are the five demand and the five supply side factors that have known to affect the housing market of Malaysia. the demand side factors that have k own to affect the housing prices of Malaysia are the growth of the economy, rate of interest, location of the houses, demographics and the income of the consumers. When there will be economic growth, rise in the rate of interest and the houses will be present in the good location, it will automatically increase the demand for the houses which will lead to rise in the price of the house. On the other hand, the supply side factors which will be affecting the price of the houses in Malaysia are number of sellers, expectation of the future price, input prices, tax and subsidies and the expectation of the producer. When the tax will increase, the producers will find it difficult to produce more houses, when the producers expect that the price of the houses in Malaysia will be increasing gin future, they will reduce the supply. Also, when the input prices increase, the supply of house will also decrease.

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