Bubble Detection in the Malaysian Housing Market

Abstract

This study uses Phillips, Shi and Yu's (2015) bubble detection method to examine housing bubbles in Malaysia. We documented five positive bubbles and one negative bubble from 1988 to 2015, including the well-known 1997 Asian real estate bubble. The bubble that originated in April 2010 is the most prominent. It peaked in 2013. Since then, it has been exhibiting strong signs of gradual collapse but was still persisting up to the end of the study period in September 2015. Some of these bubbles preceded financial crises, a phenomenon which is consistent with the findings of contagion channels between real estate and financial markets in the literature.

Prospecting Housing Bubbles in Malaysia

“…For instance, the indication of housing supply in not a sign which confirms the existence of bubbles as a whole. This finding contradicts the study by Yip et al (2017) which revealed that Malaysia faces several housing bubbles, with the most recent in 2010, which peaked around 2013. Nevertheless, the findings from Yip et al (2017) were only valid for the medium and high-end housing segments.…”

“…The sudden drop in property prices during the crisis is a sign of the property bubble bursting. This was further supported by Yip et al (2017) in a study focused on bubble detection in the Malaysian housing segment. By using Phillips, Shi and Yu's (PSY) method, they discovered a property bubble in 1996 which is around the AFC period, and more recently in 2010, which peaked around 2013.…”

“…these findings have provided an indicator for property players to strategize their investment decisions. Many real estate researchers, such as Stiglitz (1990), Siegel (2003), Lind (2009), Aggarwal (2012), Phing and Martin (2012), Oliveira and Almeida (2014), Yin et al (2017), Yip et al (2017), relate the unrealistic booming of house prices with a property bubble. This is then followed by the sudden drop in property values.…”

“…Based on the study by , the increasing cost of construction costs have made the developer transfer the cost to the buyer by increasing the house price. Several previous studies on Malaysian housing bubbles in Malaysia, such as Majid et al (2017), Loh et al (2014), Yin et al (2017), Yip et al (2017), Tze- Chan et al (2016), Fong et al (2016), Kwakye and Haw (2020) and Nasser and Masih (2016), have examined this phenomenon in regards to several attributes, such Gross Domestic Product (GDP), Base Lending Rate (BLR), unemployment rate, Consumer Price Index (CPI), housing supply, mortgage rate, mortgage credit, Housing Price Index (HPI) and exchange rate. Nevertheless, none of the studies put construction cost as the variable to identify the bubbles of house price in Malaysia.…”

Housing Market Bubbles and Mortgage Contract Design: Implications for Mortgage Lenders and Households

“…Included in studies on defining and measuring bubbles are: Shi (2017); Bono et al (2017); Giglio et al (2016); Phillips et al (2015) and Himmelberg et al (2005). Recent empirical evidence for housing market bubbles in various countries includes: Gomez-Gonzalez et al (2018); Vogiazas and Alexiou (2017) and Engsted et al (2016) for OECD countries; Shi (2017) for certain regional markets in the US; Dermani et al (2016) for Sweden; Shi et al (2016) for Australia; Shi and Kabir (2018) for New Zealand; Kim and Lim (2016) for Korea; Glaeser et al (2017) for China; Huang and Shen (2017) for Hong Kong; Boelhouwer (2017) for Netherlands; and, Yip et al (2017) for Malaysia. In contrast, Giglio et al (2016) found no evidence of the violation of the transversality condition in the UK and Singapore housing markets indicating no support for the presence of a bubble.…”