AFT 1083 MICROECONOMICS

SEMESTER FEBRUARY

SESSION 2020/2021
GROUP ASSIGNMENT

“Rising House Prices from 2017 to 2019 in Malaysia”

LECTURE’S NAME: DR NUR NADDIA BINTI NORDIN

TUTORIAL GROUP (SUBGROUP): L1T1 (GROUP 11)

Group Members Matric No.
MOHD NIZAM BIN MADIN A19A1053
NABILA BINTI NASIR A19B0393
NOOREZA HAIDA BINTI MOHAMED A19A0436
NUR AIDA NATASYA BINTI MUHAMMAD NIZAM A19A0495
SAHARA BINTI MOHD JALIL A19A0818
MAHFUZZAH ILYANI BINTI ZAM ZAMIR A19A0260
 TABLE OF CONTENTS

CONTENTS PAGE

1.0 INTRODUCTION 1

2.0 OBJECTIVE 1

3.0 THE CAUSES OF INCREASE IN PRICE OF HOUSES

2-4
3.1 INTERNAL FACTOR
3.2 EXTERNAL FACTOR

4.0 THE IMPACT OF INCREASE IN PRICE OF HOUSES 4-5

5.0 CONCLUSION 5-7

6.0 APPENDICES 7-8

1.0 INTRODUCTION
The instability and rising of house prices in Malaysia is one of the hot phenomena
spoken by every group of people. This shows that people are very concerned about the issue of
rising house prices. Director of financial monitoring and oversight of Bank Negara Malaysia
(BNM), Qaiser Iskandar Anwarudin, said most Malaysians could not afford to buy a new
home because of the cost beyond their financial means. Home is one of the most important
assets and needs to human. From prehistoric times the shelter or home has been an important
necessity apart from food and drink to human life. Evolution and technology move with time.
now, homes have become the standard of living and thus a long-term investment for the
homeowner. The main criteria that every person seeks to buy a new home is comfort and basic
amenities such as a school, a grocery store and so on. The average home market in some area
in Kuala Lumpur and Selangor is now higher than in other areas. At Kuala Lumpur, the rise in
house prices is influenced by a various factor including high demand.

In the world, increasing demand for housing is same with the global population growth.
The increasing people in the world, so will increasing demand for housing. This is the factor
that drives home prices rising every year. Moreover, to build a house, it needs land, while the
land on earth is limited in nature. In the future, the land is decreasing. Not only the housing
project, but the land also needed to build a mall, where not only square feet but hectares of
land were used. For renting or buying a home is a great alternative especially for those who are
already working. The migration of rural people to major cities such as Selangor as well as long
term investments and so on requires a large number of homes to accommodate this situation.
This situation has given developers taking opportunity to build more homes to make their own
profit.

2.0 OBJECTIVE

2.1 To identify the microeconomic issue of increasing house prices in Malaysia.

2.2 To identify the reasons for rising house prices in Malaysia.

2.3 To explain the impact of rising house prices in Malaysia.

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 2.4 To intensify efforts to maximize house prices in Malaysia.

3.0 THE CAUSES OF INCREASE IN PRICE OF HOUSES

The following are the causes that influence the increase in house prices derived from previous
studies in domestic and international journals and magazines:

3.1INTERNAL FACTOR

Internal factors are the source of rising cost controls that are fully regulated by the developer
or owner who influences the cost of housing. A variety of internal factors lead to the expectation
of current low-cost calculations planning and design stages include biases, delivery or
procurement methods, project planning schedule changes, complex engineering and construction
processes, changing scope, expectations fragile, slow-moving scope, and inconsistency in
change. These are:

3.1.1 Increased Cost of Production.

These internal factors not only occur at the planning and design stages but they
also occur during the developmental stages of housing production and construction.
Initial focus on internal factors can reduce the cost of growth during the construction
process. Internal factors leading to low-cost estimates are poor project cost planning and
defects in document design. More specifically, this factor will lead to inconsistency
application of contingency, wrong implementation, preparation contracts that have many
meanings and conflicts in contract documents. Each of these factors may stand alone or
combine with other factors to influence the increase in house prices in line with the firm's
production and construction costs.

3.2EXTERNAL FACTOR
External factors are factors that the project owner has little or no control over. However,
the owner or developer himself needs to consider it during the cost calculation process.
During the planning and design process of project development, external factors such as

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government attention and demand, inflationary fluctuations, scope changes, slow scope, and
volatile market conditions can lead to error in the project cost estimates. During the
construction process, external factors such as the local government's attention and needs,
market conditions, unforeseen events, unforeseen events were the reason for the increase in
costs. The probability of a factor event these external factors should be taken into account
during the cost estimation process. Like internal factors, external factors can also stand alone
or combine with other factors to influence the increase in costs over time. Some of the
external factors that lead to rising house prices in Malaysia are:
3.2.1 Demand More Than Supplies

The study by Osmadi et al. (2015) on the element of house prices also found that
house prices were determined by demand for a home not only of the unit itself, but also
by the location factor of the unit. There are many structural features such as
neighborhoods and locations that can impact the home price element. Structural features,
location factors, and neighborhood characteristics can determine the prices of various
sub-markets. In this case the sub-market is determined by the type of residential
structures such as terraced houses, townhouses and condos. The findings show that
housing prices in Malaysia are highly dependent on population, demand and supply and
income. In addition, neighborhood factors also influence the selection of residential areas.
So in Malaysia, the offer for the sale of high house is against the demand because of the
higher price in market place.

3.2.2 Increasing in Cost of Buildings

In addition, the cost of construction materials is highly dependent on the
current market price of the material (Seng 2006). The list of building materials
involved is brick, wood, cement, concrete, floor and wall finish, doors, windows,
electrical and electrical equipment, water and water supply equipment, roads, and
so on.
According to a report published in the journal Master Builders (Raftery et.
Al2009), the price increases for materials such as reinforced steel, cement, sand,
and wood. An increase of 15 to 20 percent in the price of reinforced steel and 10
percent for cement was recorded in 2007. Whereas for sand, it is not a controlled

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 substance by the government, then the price is controlled by the market. For
timber and plywood, the increase in prices is due to external market demand
which requires good quality of materials while increasing the price of raw
materials. Thus, as the cost of building materials goes up, the price of real estate is
also rising and expensive.
3.2.3 Increasing in Equipment Costs and Building Machines
The cost of machinery is calculated either by day or by the hour when the
machinery available on the site which is included in the construction cost is
concrete mixer, excavator, tractor, grinder, and water heater. Apart from the
above, machinery costs are also considered as maintenance costs, including oil
diesel, management, and driver or machine supervisor. In fact, the cost of buying
machinery is also high in the cost of housing. Thus, when the cost of machinery is
high, the cost of housing prices also increases in Malaysia.

4.0 IMPACT OF INCREASE IN PRICE OF HOUSES IN MALAYSIA.

4.1 IMPACT ON THE COUNTRY

4.1.1 Economic

Economics provides a broader background in the real estate market. Positive

economic situations do not mean that people have more money to buy, but a more positive
attitude toward investing in significant financial commitments such as real estate. Interest
rates are one area that can significantly affect real estate market transactions, as higher
interest rates can make loans less affordable for many people. High interest rates can reduce
demand, and negatively impact valuation. On the other hand, low interest rates make loans
more affordable, and increase the number of people who can get financing for investments.
Inflation can be another major challenge, especially in areas with limited real estate supply.
As inflation raises property values, real estate prices will rise. Economic factors are not
limited to inflation and interest rates.

4.1.2 Future Development

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 Future development can have a significant impact on real estate prices, creating a
great opportunity for real value growth. Newly developed mass transport connections such as
LRT stations, MRTs, or new trains can increase property prices in the area. A new coveted
mall or other local infrastructure element can also provide a positive boost. It is important to
realize that some bad developments can negatively impact property prices.

4.2 IMPACT ON THE CONSUMER.

4.2.1 Consumer confidence.

Confidence is important in determining whether a person wants to take out a

mortgage. In particular the expectations of the housing market are important; if people are
afraid that house prices may go down, people will postpone the purchase.

4.2.2 Interest rates.

Interest rates affect the cost of monthly mortgage payments. The high interest rate
period will increase the cost of mortgage payments and result in lower demand for a home.
High interest rates make renting more attractive than buying. Interest rates can have a bigger
effect if a homeowner has a large mortgage. As a result, the sharp rise in interest rates has
led to a sharp decline in home prices as many homeowners are unable to raise interest rates.

5.0 CONCLUSION
5.1 SOLUTION FROM GOVERNMENT TO RESOLVE THE ISSUES
ABOUT INCREASE IN PRICE OF HOUSES IN MALAYSIA

5.1.1 Reduction of Development Charges and Compliance Costs

Forwarding charges are charges incurred to the applicant or a developer wake up

land and there increase in land value such as zone change planning, enhancement to the
population, a huge increase floor or plot ratio, whatever the cost of compliance is set by
the agency below State Government or Local government such as charging charges am.
The provision of affordable housing is a Government initiative ensuring that real estate

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 deals meet market demand at a reasonable price and according to your ability people.
Rising land prices and building materials are among the reasons rising real estate prices.
These factors are difficult to avoid, but a reduction in the development charges and
compliance costs to developers can contribute to cost reduction housing especially in the
category of affordable housing. The Government is very much in favor of the
development and cost charges compliance imposed by the State Government and the
Authority Locations can be excluded or reduced for categories affordable housing
development. With this, indirectly will reduce the cost of development and bring down
the house price affordable. With the exception and reduction of this compliance charge, It
is estimated that housing prices will decrease and the Government will The federal and
private sector can increase the supply of affordable housing properties, especially in cities
and strategic locations

5.1.2 People's Housing Authority

The Government has proposed the establishment of a non-profit People's Housing

Authority (LPR) to build low and medium-cost houses on government land for sale to local
couples who want to buy their first home. Government land for the scheme should be given
directly to the LPR and not owned by the SEDC or similar government-owned company set
up to earn rent from the process. These homes will be sold to the first home buyer at a price
slightly above the cost of construction, provided that the owner can only sell the home back
to his or her own LPR. LPR can resell the house to other eligible families.

5.2 SOLUTIONS FROM PRIVATE INSTITUTIONS TO RESOLVE THE

PROBLEM OF RISING HOUSE PRICES.

5.2.1 Establishing a system of affordable housing sharing between the government

and the private sector.

The problems of the rising house prices is directly increasing in our country. This
problem has had an impact on low-income people to get a house at a affordable price in the
market. In the solutions is the government and the private sector must take action to solve

6
 this problem such as establishing a system of affordable housing sharing between the
government and the private sector. The government need to provide affordable housing for
the people B40 to be sure that they can get the house for their family as their asset. This is
because only the government know the price level of the house and the income level of B40.
While the private sector can build the houses that the others can get in the market. The price
that the private sector use can give opportunity to them sell at the people had the higher
income. This also can avoid the higher income from taking advantages of the people who
have lower income to compete for get the house.

5.3 SOLUTION FROM PEOPLE TO RESOLVE THE PROBLEM OF

RISING HOUSE PRICE

5.3.1 The community need to save on their daily expenses.

The community need to be concerned about the issue of price increases for the
houses. This is because they need to save their money for get their target which is get their
own house. The community need to be aware of this issue so that they can recognize the
importance of owning a house for the future of their family. Nowadays, there are many
competitions over home ownership especially among the first house and the youngest. In that
time, starting salaries for graduates are also low income so it is the big reason to give
awareness to young people who are just starting their lives to save on their expenses. As
evidence is over 50% of Malaysians earn less than RM 2160. Therefore, the growth of this
level income does not provide the incentive for affordable house ownership.

6.0 APPENDICES

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REFERENCES & APPENDIX
1. https://kapital.my/2018/07/mekaniseme-kuota-bumiputera-perlu-dikaji-kajian-rehda/
2. file:///C:/Users/USER/Desktop/Mikroekonomi/PELAN_STRATEGIK_KPKT_2016_202
0.pdf
3. https://www.mstar.com.my/niaga/2017/08/01/ssm-daftar-online
4. https://www.kpkt.gov.my/resources/index/user_1/Attachments/hebahan_slider/BUKU_D
RMM.pdf
5. https://www.propertyguru.com.my/property-guides/7-factors-impacting-price-in-
malaysia-s-property-market-13759
6. https://www.economicshelp.org/blog/377/housing/factors-that-affect-the-housing-market/

7. https://www.google.com/amp/s/www.bharian.com.my/node/688314/amp
8. https://www.bharian.com.my/node/277125