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.

Prospecting Housing Bubbles in Malaysia

“…In this paper, the product refers to residential property. As a result of this technique, the index that was produced is able to include certain characteristics of the property, such as location, house type, neighborhood classification and much more (Kassim et al, 2017). It was also revealed that the base year shown in the index is intended to reflect the changes of residential property prices due to the preferences shown by the buyers and the emergence of new trends in the property market.…”

The Relationship between House Prices and Economic Growth in Malaysia: An Empirical Analysis

“…Housing price index is one of the widely used indicators in real estate property market as it portrayed the general fluctuation of housing prices across the period. On top of it, housing price index served as a broad indicator for the operation and transaction of the property markets (Kassim, Redzuan, & Harun, 2017;Xin, Burhan, & Diah, 2019). The index is based on the hedonic approach to price measurement using multivariate regression analysis with 1990 as the base year.…”