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CONTENTS INTRODUCTION 3 METHODOLOGY 4

Conceptual Framework 4 Analysis 4 FINDINGS 5-28 Average property price and building cost index 5-12 Average property price and tender price index 13-18 Average property price, tender price index and crude oil price 19-21 Housing units statistic and population 22-25 Housing units and loans 26-28 CONCLUSION 29 Summary 29 Major findings 29

About the author 30

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INTRODUCTION

Mr A, an executive in private firm with a salary of RM5,000 per month had started to

dream owning a house. After looking around for a house, he is exhausting. With an average price of RM500,000 for 900 sqft apartment, he started to believe the house is not affordable. This belief is confirmed when he too heard his peer talking about the same issue. How come house price become so high that even his higher than average earning can’t seem to buy one?

Over the past fifteen years, property in Malaysia has experienced a significant price

expansion with several states expanded at higher rate. House price movement are normally inherent with the regional economics and demographics change such as income, cost of capital, stock prices and population. Malaysia as a developing country will tend to experience high inflation with high price on goods and services. So the rise of house price is unintended consequences of economic development combined with geographical constraints, entrepreneurialism, FDI investment, increased physical connectivity, and increasing international profile. Besides that Malaysia also have a relatively low round trip purchase cost, low capital gains taxes, and high rental yield make it attractive to investor regionally and globally.

The phenomenon of high house prices in Malaysia are started to affect the majority of

middle class people especially in the urban area of Selangor, Penang, and Johor. The only investment class that earlier was reachable by everybody, are now become exclusive and can only be bought by high income group. The burdening of high price of consumer product with low income growth has squared further the middle class group into the financial trap. With Malaysia heading towards high income nation, the high house prices become the key issue need to be address in order to balance the socioeconomic growth.

There are a lot of factors at play in regards of high house price. High cost, high demand, and speculative activity are among the popular cause of high house price. But it is true? This is what the report is trying to address, by looking at few factors at play and to examine the cause of high prices in Malaysia housing market.The report will bring the reader into every aspect related to housing industry, from development cost until to the economic data. The report is good enough for anyone who have interest in housing market to use it as basic guidance in buying a house in Malaysia either for investment or own stay. Once the causes are identified it is easy for investors, home owners and public to assess the market and make decision wisely on the home buying and the direction the market will go in the next 3 to 5 years.

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Year Average property price Malaysia (Jan - Dec) -

residential

KL Selangor Johor Penang Malaysia

2002 28,8792,

180,904

131,825

151,072

130,257 2003 29,241

8 199,792

137,196

165,363 ,

139,697 2004 33,167

7 226,776

140,712

168,581

150,048 2005 35,227

0 220,698

134,142

172,226

156,289 2006 34,265

8 228,047

117,787

177,487

161,304 2007 40,978

0 244,783

137,219

212,358

182,927 2008 43,608

8 249,017

136,034

228,340

190,603 2009 38,990

6 260,091

148,566

226,303

197,737 2010 48,853

6 290,666

166,799

265,124

223,270 2011 45,746

2 302,997

163,548

251,713

228,091 2012 n/a n/a n/a n/a n/a Table 1 : Average property price (residential) from 2002 to 2011 at selected states. Source : National Property Information Center (NAPIC)

Year CIDB - Building Materials Cost Index Low Rise Residential Building (Up to 5 Storeys)

KL, Selangor, N. Sembilan,

Melaka

Johor P.Pinang, Kedah, Perlis

2002 101.3

101.3 101.2 2003 104.4 104.5 102.5 2004 112.4 112.9 109.2 2005 116.0

115.2

113.2

2006 118.7

117.6

115.9 2007 132.0

131.1

131.7

2008 145.1

143.8

142.8 2009 147.0

144.2

143.2

2010 151.8

147.8

146.7 2011 n/a n/a n/a

2012 n/a n/a n/a Table 2 : Construction Industry Development Board Malaysia (CIDB) Building material cost index Source : CIDB

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Figure 7 : CIDB Building material cost index – Malaysia