What Drives House Price in Malaysia? In Search of an Alternative Pricing Benchmark for Islamic Home Financing

Abstract

The current practise of the Islamic banks to rely on market interest rate as pricing benchmark for their home financing products has been a subject of intense debate among many parties. Muslim scholars have warned that it is highly discouraged as it could lead to a possible convergence between the practices of the Islamic and conventional banks. This paper intends to address the financing issues in the discussion of human settlement or housing policy by presenting the determinants for house price index as well as looking into the possibility of adopting the House Price Index (HPI) to replace the market interest rate as a pricing benchmark for the Islamic home financing. The study applies Auto-Regressive Distributed Lag (ARDL) method on a model comprising HPI as the dependent variable and a set of independent variables consisting of economic, housing demand and housing supply factors. The findings lead to the formulation of recommendations as a way forward for the Islamic banking industry in particular, and the economy in general. This will require a paradigm shift from basic financing products to a more holistic approach which integrates supply of housing factors, as well as urban planning and urban finance, with human rights and recognizes the need to place and shelter people.

Dynamics of selecting Islamic home financing

“…A range of "mark-up" amount has been settled. The purchaser of the home financing chooses the house and sells it again to the customer on which a little higher price is charged (Kassim, Redzuan, & Harun, 2017). Another variant is that the customer pays back the price in instalments (Maali, Casson, & Napier, 2006).…”

A Review: Product Pricing of Islamic Banking in Indonesia

“…Salina Hj Kassim, Nur Harena Redzuan, & Nor Zalina Harun [38] propose a method of calculating home ownership financing in Islamic banks using the House Pricing Index as an alternative interest rate as a benchmark for Islamic home financing products. A series of empirical tests to determine the relationship between HPI and macroeconomic indicators and housing was carried out using multivariate time series analysis based on Auto-Regressive Distributed Lag (ARDL).…”

Business Development Strategy Model of SMEs Through SWOT and EFE-IFE Analysis

“…External factors include economic strength, social, cultural, demographic and environmental strength, political power of government and law, technological strength, and competitive strength (Purwono, Suryaningsih, Putri, 2015;Abubakar, Bella, 2013). In doing so, before a strategy is implemented, strategic planning must analyze the external environment (Kassim, Redzuan, Harun, 2017). Internal factor evaluation (IFE) influences the formation of strengths and weaknesses.…”