inspiring creative and innovative minds

THE SIGNIFICANCE OF RESIDENTIAL PROPERTY IN MALAYSIAN PROPERTY

SECTOR

Muhammad Najib Mohamed RazaliHishamuddin Mohd Ali

Department of Property ManagementFaculty of Geoinformation Science and

EngineeringUNIVERSITI TEKNOLOGI MALAYSIA

Email : [email protected]; [email protected]

INSPIRING CREATIVE AND INNOVATIVE MINDS1

The Content

• Introduction• Methodology• Findings• Conclusions


Introduction

• Residential property in Malaysia constitutes more than 50 per cent of the total number of property transactions.

• Furthermore, residential property market in Malaysia has been experiencing rapid growth due to the growth of population and economic since 1990.


Introduction

INSPIRING CREATIVE AND INNOVATIVE MINDS

N

GDP (billion) 386.6

GDP growth 5.1%

GDP- PPP 15 300

GDP Sectors

Agriculture 9.7%

Industry 44.6%

Services 45.7%

Labour Force (million) 11.2

Unemployment 3.7%

Table 1: Economic and Financial Profile of Malaysia: 2008

4

Introduction


Table 1: Economic and Financial Profile of Malaysia: 2008 (cont’d)

Household Income

Lowest 10% 1.4%

Highest 10% 39.2%

Investment (gross fixed) 20.7% of GDP

Inflation rate 5.8%

Property Transaction Volume (Billion) 3.7

Business Competitiveness Index 23

Corruption Perception Index 43

5

Introduction


Table 1: Economic and Financial Profile of Malaysia: 2008 (cont’d)

World Competitiveness Index

Economic Performance 8

Government Efficiency 19

Business Efficiency 14

Infrastructure 25

Asia Pacific 7

Overall 19

Real Estate Transparency Index 23

Source: WEF (2008), RCA (2008), Transparency International (2008), CIA (2008) and JLL (2008)

6

Introduction


Table 2: JLL Global Real Estate Transparency Index: 2008

Source: WEF (2008), RCA (2008), Transparency International (2008), CIA (2008) and JLL (2008)

High Transparent Transparent Semi Transparent Low Transparent Opaque

Canada Ireland Chile Kuwait Belarus

Australia Hong Kong Latvia Turkey Sudan

USA Singapore Russia Colombia Cambodia

New Zealand Germany Estonia Peru Peru

UK Finland Slovakia Uruguay Uruguay

Netherlands Denmark Dubai China Venezuela

France Spain Greece

Sweden Austria Bulgaria

Belgium Norway

Italy

Switzerland

South Africa

Portugal

Malaysia

7

Methodology

• Data were obtained mainly from National Property Information Centre (NAPIC), Ministry of Finance Malaysia from 1999 to 2008. The Malaysian property sectors assessed were:

– total property– residential property types : terraced, high rise, detached,

semi detached– residential property size– residential property main area : All state


Methodology

• Annual return and risk level analysis as well as correlation analysis were carried out to assess the performance for residential property in Malaysia for the period 1999 to 2008. Rank correlation analysis was also used to compare annual return index and risk level index of each performance analysis namely:

– Property sector performance– Residential property sector performance– Property sector performance: state


Methodology


Table 3: Property Sector Performance in Malaysia 2001-2008

*Value in USD Million

Source: National Property Information Centre (2008)

10

Year Residential Commercial Industrial Agricultural Development Land Others Total

Volume Value % Volume Value % Volume Value % Volume Value % Volume Value % Volume Value % Volume Value

2001 176 208 6343 57 15 862 1836 17 6 098 1234 11 36 659 660 6 7 577 949 9 230 17 0.1 242 634 11039

2002 162 269 6039 55 17 048 1841 17 6 010 1097 10 37 071 923 8 8 755 1112 10 241 29 0.2 231 394 11041

2003 164 723 6575 53 18 663 2093 17 6 490 1133 9 43 506 1057 9 9 531 1523 12 463 28 0.2 243 376 12410

2004 195 243 8550 50 24 212 3129 18 7 818 1667 10 53 906 1564 9 11 650 2373 14 383 29 0.2 293 212 17132

2005 181 762 8116 50 24 151 3323 20 7 143 1430 9 51 868 1415 9 11 376 1916 12 208 29 1 276 508 16223

2006 176 277 8276 49 24 211 3193 19 6 973 1706 10 50 723 1595 9 11 152 2297 14 264 19 0.1 269 600 17010

2007 199 482 10426 48 27 900 3174 14 7 919 2023 9 60 155 1654 8 13 971 3354 15 28 3 0.01 309 455 22041

2008 216 703 11802 49 31 747 4672 20 8 126 2256 9 68 954 2432 10 14 703 4116 17 13 1 0 340 246 23812

Methodology


Figure 1: Sector Performance in Malaysia: 2001- 2008

11

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008

Others

Development Land

Agricultural

Industrial

Commercial

Residential

Methodology


Figure 2: Residential Property Performance: 2001-2008

12

0

50000

100000

150000

200000

250000

20012002200320042005200620072008

0

2000

4000

6000

8000

10000

12000

14000

Volume

Value ( USD '000)

Findings


Table 4: Property Sector Performance 1999- 2008: Risk Adjusted

13

Residential Type

Average Annual Return

(%)

Ranking Annual Risk

(%)

Ranking Risk/ Return Ratio

Total 4.25 2.32 0.55Residential 7.20 1 3.43 3 0.47Commercial 6.10 2 8.24 5 1.35Agricultural 2.32 6 12.42 6 5.35Industrial 5.42 3 3.20 2 0.59Development Land

4.47 4 4.24 4 0.95

Other 3.28 5 1.23 1 0.38

Findings


Table 5: Residential Property Performance Analysis 1999- 2008

14

Residential Type

Average Annual Return

(%)

Ranking Annual Risk(%)

Ranking Risk/ Return Ratio

All Houses 7.20 3.43

Terraced 3.21 3 3.23 4 1.00

High-rise 2.64 4 6.23 1 2.36

Detached 6.21 1 5.12 2 0.82

Semi- detached 3.57 2 3.35 3 0.93

Findings


Table 6: Residential Property Performance: State

15

State Average Annual Return

(%)

Ranking Annual Risk(%)

Ranking Risk/Return Ratio

Perlis 5.54 5 12.28 14 2.22Kedah 5.52 6 7.23 7 1.31Penang 4.42 9 4.42 4 1.00Perak 5.12 7 5.23 5 1.02Selangor 3.21 11 3.21 1 1.00Kuala Lumpur 6.21 4 4.25 3 0.68Negri Sembilan 2.98 12 3.28 2 1.10

Malacca 3.54 10 7.20 8 2.03Johor 0.20 14 7.10 9 35.50Pahang 7.23 2 7.70 11 1.07Terengganu 7.20 3 10.20 13 1.42Kelantan 2.89 13 7.02 10 2.43Sabah 8.20 1 8.20 12 1.00Sarawak 5.43 7 6.28 6 1.16

Findings


Table 7: Residential Type Correlation Matrix: 1999 - 2008

16

Terraced High Rise Detached Semi Detached

Terraced 1.00

High- rise 0.20 1.00

Detached 0.62 0.34 1.00

Semi- detached 0.51 0.42 0.82 1.00

Findings


Table 8: Correlation Matrix between States in Malaysia

17

Perlis Kedah Penang Perak Selangor KL Negeri Sembilan

Malacca Johor Pahang Terengganu Kelantan Sabah Sarawak

Perlis 1.00

Kedah 0.42 1.00

Penang 0.32 0.42 1.00

Perak 0.34 0.23 0.45 1.00

Selangor 0.52 0.70 0.86* 0.42 1.00

Kuala Lumpur

0.20 0.29 0.52 0.42 0.86* 1.00

Negri Sembilan

0.23 0.10 0.23 0.22 0.51 0.86* 1.00

Malacca 0.12 0.21 0.42 0.26 0.58 0.87 0.51 1.00

Johor 0.15 0.28 0.52 0.42 0.76 0.87 0.42 0.65 1.00

Pahang 0.16 0.32 0.51 0.51 0.87* 0.78 0.32 0.42 0.55 1.00

Terengganu 0.16 0.27 0.22 0.48 0.48 0.51 0.34 0.18 0.21 0.52 1.00

Kelantan 0.12 0.28 0.13 0.56 0.18 0.52 0.39 0.23 0.36 0.32 0.67 1.00

Sabah 0.10 0.12 0.17 0.22 0.44 0.50 0.21 0.21 0.21 0.12 0.14 0.21 1.00

Sarawak 0.21 0.22 0.17 0.42 0.32 0.45 0.25 0.22 0.12 0.14 0.17 0.29 0.51 1.00

Findings


Table 8: Correlation Matrix between States in Malaysia

18

Perlis Kedah Penang Perak Selangor KL Negeri Sembilan

Malacca Johor Pahang Terengganu Kelantan Sabah Sarawak

Perlis 1.00

Kedah 0.42 1.00

Penang 0.32 0.42 1.00

Perak 0.34 0.23 0.45 1.00

Selangor 0.52 0.70 0.86* 0.42 1.00

Kuala Lumpur

0.20 0.29 0.52 0.42 0.86* 1.00

Negri Sembilan

0.23 0.10 0.23 0.22 0.51 0.86* 1.00

Malacca 0.12 0.21 0.42 0.26 0.58 0.87 0.51 1.00

Johor 0.15 0.28 0.52 0.42 0.76 0.87 0.42 0.65 1.00

Pahang 0.16 0.32 0.51 0.51 0.87* 0.78 0.32 0.42 0.55 1.00

Terengganu 0.16 0.27 0.22 0.48 0.48 0.51 0.34 0.18 0.21 0.52 1.00

Kelantan 0.12 0.28 0.13 0.56 0.18 0.52 0.39 0.23 0.36 0.32 0.67 1.00

Sabah 0.10 0.12 0.17 0.22 0.44 0.50 0.21 0.21 0.21 0.12 0.14 0.21 1.00

Sarawak 0.21 0.22 0.17 0.42 0.32 0.45 0.25 0.22 0.12 0.14 0.17 0.29 0.51 1.00

Findings


Table 9: Correlation Matrix for Property Sector Performance in Malaysia

19

Total Property

Residential Commercial Industrial Agricultural Development Land

Others

Total Property

1.00

Residential 0.83* 1.00

Commercial 0.73* 0.56 1.00

Industrial 0.45 0.48 0.51 1.00

Agricultural 0.23 0.32 0.34 0.51 1.00

Development Land

0.51 0.55* 0.45 0.62* 0.32 1.00

Others 0.32 0.23 0.22 0.45 0.44 0.51 1.00

* Significant correlation (p < 5 per cent)

Findings


Table 10: Rank Correlation 1999 - 2008

20

Index Spearman’s

coefficient (Rs)

Property Sector Performance -0.543

Residential Property Performance -0.200

Residential Property Sector Performance- State

-0.314

Conclusions

• The analyses in this paper have shown residential property make a significant contribution to property market sector in Malaysia. From the year 2001 to 2008, it gives more than 48% of value of total property market property market value with 51% average market. While commercial property have seen good performance with average 18% growth over 1999 to 2008 periods.


Conclusions

• From a diversification context, it has shown that residential property give benefits to certain property sector; commercial and land development land. In term of residential property type, terrace house made known as the most favourite type of housing project among investors. This is shown by the highest annual return and most importantly among the lowest risk level. The analysis also analyse the residential property sector performance among each states in Malaysia. This will give importance guideline for investors to decide the location to invest specifically on residential property. Additionally, comparison has been made between annual return and risk level index to examine the correlation between these two indexes. It has shown only residential property performance have correlation in these two indexes.


Conclusions

• Finally, given the various point of view type of analyses of residential property market in Malaysia, residential property in Malaysia is believe will continue to give a significant contribution to property sector. As demographic in Malaysia have seen positive growth over the year, it will give better impact to residential property. Given the importance of residential property in Malaysia, there are further research issues need to be considered. First, the house price analysis over the same period for each type of houses. Secondly, it can be narrowed to each state of Malaysia and compare to other type of property portfolio. Risk adjusted performance analysis technique also could be use in further research to assess in depth significance analysis on residential property in Malaysia.


Thank you!

Muhammad Najib Mohamed RazaliHishamuddin Mohd Ali

Department of Property ManagementFaculty of Geoinformation Science and

EngineeringUNIVERSITI TEKNOLOGI MALAYSIAEmail : [email protected] ;

[email protected]: +607-5530880 / +6019-7176463


mailto:[email protected]

mailto:[email protected]

inspiring creative and innovative minds

Documents

innovative mindstable

residential property

malaysian property sectors

stateinspiring creative

methodologyinspiring

financial profile of

performance analysis

ministry of finance