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Supply-side drivers of residential Supply-side

perspectives of
price in Malaysia: a qualitative residential
analysis from price

developers’ perspectives 543

Hassanudin Mohd Thas Thaker and Mohamed Ariff Received 2 October 2019
Department of Economics and Finance, Sunway University, Petaling Jaya, Malaysia Revised 18 January 2020
10 March 2020
10 April 2020
Abstract Accepted 23 April 2020
Purpose – This study aims to explore the issue of residential price in Malaysia from a supply-side perspective.
The views are directly obtained from medium and small-scale developers in Malaysia.
Design/methodology/approach – We used the semi-structured interview for analysis purpose. The
samples are from property developers (medium and small-scale developers) and a single respondent from the
Malaysian National House Buyers Association. We used the judgmental sampling method to choose
respondents for this study. The interview results went through content analysis in order to derive
common themes, resulting in the identification of four main themes.
Findings – First, developers view that the residential market is growing at a good pace, albeit slowly.
However, the issue of unaffordability and construction costs remains to haunt the progress of property
development in Malaysia. Second, from supply-side perspectives, there are several main reasons why the
residential prices in Malaysia are uncontrollable: (1) costs of construction, (2) taxes, (3) existing units, (4)
location and (5) urbanization. The third theme is the government support in catering to the needs and wants of
middle- and lower-income earners. Most respondents agreed that the government has been providing low-cost
houses supported by various incentives. Finally, on price control strategies for residential units, recommended
suggestions are as follow: embracing different methods of construction styles, promote the uses of local
materials instead of relying on imported materials, continuously review rules and regulations, provide
more incentives and to build partnerships between the government and private companies on affordable
housing projects.
Practical implications – The research is expected to present solid findings and claimsseveral significant
contributions, especially policy-wise. We believe this contribution will enrich the existing literature on
residential market. The present study is also predicted to produce noteworthy findings to all stakeholders in the
real-estate industry, such as potential home buyers and existing house owners to housing developers,
marketers and government policy regulators, as well as academic institutions.
Originality/value – This study is expected to enrich the existing literature available in the context of real-
estate finance such as property price and property policy in emerging economies like Malaysia. One
distinguishing factor which differentiates this study from others in the literature is the feedbacks obtained from
medium and small-scale developers, therefore deemed to be more solid and reliable. The current research in
real-estate finance is mainly focused on empirical analysis and we believe this study will offer a breakthrough
view on the matter of residential market in Malaysia.
Keywords Housing, Prices, Residential property, Interviews
Paper type Research paper

1. Introduction
The price of residential property in Malaysia has been increasing over the years. According to
the report published by the National Property Information Centre or NAPIC (2017), the
country’s residential price index has sharply increased and recorded a maximum value
and continues to increase. The Malaysian Housing Price Index (MHPI) increased from 97.2
points to 184.1 points in 2017, roughly increasing to about 89.40%. In the different
segregations of the housing category, the Terrace House Price Index (THPI) incremented from
102.1 points in 2010 to 186.7 points in 2017. Similarly, the High-Rise Price Index (HRPI) Property Management
Vol. 38 No. 4, 2020
accelerated from 99.5 points in 2010 to 197.8 points in 2017. These indexes show that the pp. 543-564
© Emerald Publishing Limited
Malaysian residential market is facing a perturbing situation and this may have a direct 0263-7472
effect toward low and DOI 10.1108/PM-10-2019-0056
PM middle earners. A report by Bank Negara Malaysia (2017) showed that only 21% of
38,4 residential units were selling at a price below RM250,000. The remaining units were
above RM250,00 and targeted for above middle-income group earners. Some common
factors contributing to this issue would be the level of income among Malaysian earners and
inflation (Olanrewaju et al., 2018; Rehda, 2016).
Figure 1 illustrates the current scenario that is unraveling in Malaysia, pertinence to
544 the question of affordability of Malaysia housing property; Since the year of 2017 the
housing
price and personal disposable income of Malaysia has reached a convergence point in which
the housing price is decreasing in a faster pace whereas the growth of the personal disposable
income is considered dismal. The hindsight of it that the inflation rate has been soaring high
in term of its gradient of the curve.
According to the Department of Statistics Malaysia, middle- and low-income earners’
median incomes are RM6,275 and RM3,000 respectively (mean for these two groups are
RM6,502 and RM2,848) with an average household of four in a family. The average earning is
therefore RM4,637.50 for both groups. This means that the earning of the upper income
group is higher than that of these two groups by 41.75%. Based on these statistics, it can
be assumed that middle- and lower-income earners are likely unable to afford a
residential property, especially with the insufficient number of units available for them. Figure
2 shows that even though the housing price index is directly proportional to the personal
disposal income, the personal disposable income of average Malaysian grew slower than
anticipated from the steepness or gradient of the curve. This combine with the inflation
rate which has been cumulating over the years have provide a salient factor in
propagating housing affordability issue in Malaysia.
The Malaysian Finance Ministry continuously assures the public that the government
is trying its best to promote more affordable homes for those earning below RM300,000 to
fulfill a greater buyer demand. Unfortunately, there is a disparity in the numbers in which
the demand for affordable homes is at 48% whereas the supply is only 28%. The
availability of limited units as a result of abandoned projects is where the problem starts.
Though shown in Figure 3 that there is rapid decline in terms of volume and also the value
of transaction starting from the year 2011 to current. In which it postulates that the
property cycle is experiencing or on the verge of recession phase but even though the
value of property transaction is in decline, the question of affordability for the low- and
middle-income group are still on the undesirable side.

20 120

15 100
Inflation Rate (%)
Year- Over- Year(%)

10 80

5 60

0 40
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019

-5 20

Figure 1. -10 0
Statistics of current Year
scenario of residential
properties in Malaysia HOUSE PRICE INDEX (%YOY) NADJ
(Ministry of INCOME - PERSONAL DISPOSABLE (%YOY) NADJ
Finance, 2019) INFLATION,CUMALATIVE AVERAGE CONSUMER PRICES
(%YOY) NADJ
 7

6
120
Supply-side
Log Value of MYR
5
100 perspectives of
residential

Inflation Rate (%)

4 80

3 60
price
2 40
1
20
545
0
0
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Year
Figure 2.
Housing price index,
INFLATION,CUMULATIVE AVERAGE CONSUMER PRICES personal disposal
(%YOY) NADJ income and cumulative
HOUSE PRICE INDEX (MYR) NADJ inflation rate (Ministry
of Finance, 2019)
INCOME - PERSONAL DISPOSABLE CURN (MYR)

500.00 180.00
450.00 160.00
400.00

Value(MYR Billion)
140.00
350.00
Volume('000)

120.00
300.00
100.00
250.00
80.00
200.00
60.00
150.00 Figure 3.
100.00 40.00 Volume and value
50.00 20.00 of property
transaction property
0.00 0.00 market (National
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

Property
Information Centre
Report, 2017)
Volume of Transaction ('000) Value (MYR Billion)

Furthermore, there are 32.3m people as of 2018 in Malaysia (Worldmeter, 2018). The
population growth is 1.5–2% a year (Shuid, 2016). Based on the statistics published by
the Department of Statistics as well as a census report in 2016, the total number of
households was 6.9m with an average household size of four. Unfulfilled desire to own/rent a
residential property among this population is the basis for the demand by middle- and
low-income groups. The industry aims to supply residential properties at a cost with a
reasonable return on investment in real estate (Suhaida et al., 2010). Highly relevant to the
focus of this study, we note the following features of house price indices: 8.6% increase for
terrace houses, 5.3% for high-rise, 4.3% for detached units and 6.5% for semi-detached
over a year in 2017 (NAPIC,
2017). Concerning existing residential units, landed housing dominating the property market
with 70.4% share. On the other hand, high-rise property shares 29.6% of market share. But,
the momentum is reversing with less supply, for instance, incoming and planned supply, with
landed properties, decrease to 61. 4% and 60.1%, respectively, while high-rise property jumps
to 38.6% and 39.9%. This new phenomenon reflects Malaysia’s is moving toward rapid
urbanization and population densities that cause more vertical property development in
concentrated spaces (see Figure 4). However, there is a reversing pattern as well in low-cost
houses and flats. It represents 21.9% of the existing unit but it currently shows declining
momentum in incoming and planned supply to 10. 4% and 16.5% (see Figure 5).
PM Historical records show that such increases are more than the rate at which affordability is
38,4 growing/declining as measured from income increases (appro Ximated by GDP growth).
According to CoX and Pavletich (2016), affordability of residential property is closely
linked to income in which the cost of residential units should not exceed 30% of gross
income. Following suit, Bank Negara Malaysia ordains that a household is no longer
sufficiently affordable if the residential price to income ratio exceeds 3.0. However, the range
546 of price to income ratio in Malaysia was 4.0–4.4 during 2014–2016 (Khazanah Research
Institute, 2016).
Thus, this matter needs some serious attention. The accumulation of households with 85%
debt further contributes to the issue of unaffordability. The continued increase of residential
price will definitely dampen the housing sector in Malaysia and will have a greater impact on
middle- and low-income earners.
There are many existing literature available in the context of real-estate finance in
Malaysia. Nevertheless, there is limited account on developers’ perspectives and their
opinions on residential markets in Malaysia. Past studies conducted in Malaysia mainly focus
on the empirical dimension. For example, the study by Lu et al. (2015) focused on
housing price bubble in Penang. Pillaiyan (2015), on the other hand, examined the
macroeconomic factors influencing housing price, while Ong (2013) studied the general
factors affecting house price using the econometrics approach. Kok et al. (2018) carried out a
research on the sources of house price changes using empirical research, and
Trofimov et al. (2018) investigated the macroeconomic and demographic factors to
explain house price behavior.
Lastly, Thaker and Sakaran (2016) concentrated on housing selection priority in Malaysia.
Thus, it would be worthwhile to study the residential market from different perspectives,
such as a qualitative examination on the housing issue in Malaysia from the developers’ point
of view.
Given the statistical information and motivation stated above, this study aims to explore
the supply side of residential price drivers in Malaysia from the perspective of the developer
(comprise of medium to small-scale developers) and the Malaysian National House Buyer
Association. The methodological approach employed was qualitative in nature, namely
the

80
70
Percentage (%)

60
50
Figure 4. 40 High Rise Housing Landed
Housing supply in 30 Housing
Malaysia, 2019Q1
20
(National Property
Information Centre 10
Report, 2017) 0
Exsiting Completion Incoming Supply

70
60
Percentage (%)

50
Figure 5.
40
Supply of low-cost flat Low-Cost Flat
and low-cost house in 30
Low-Cost House
Malaysia, 2019Q1 20
(National Property
10
Information Centre
Report, 2017) 0
Exsiting Completion Incoming Supply
semi-structured interview with developers from four main states in Malaysia (i.e. Kuala
Lumpur, Selangor, Penang and Johor). They were selected as the research locations due to the Supply-side
rapid progression of housing projects taking place in these four states and the perspectives of
significantly higher residential unit prices as compared to other states. We believe that residential
executing a structured and comprehensive study on the issue of residential price will price
yield reliable findings on the current public policy debate. We believe that this study will
provide a platform to understanding problems which was not possible for over a decade due
to a lack of
547
care in formulating solutions. The literature on real-estate finance is also concerned with the
financial economics of built-environment for residential, commercial and industrial use in an
economy. The research is expected to present solid findings and claims several significant
contributions especially policy-wise. We believe this contribution will enrich the existing
literature on residential market. The present study is also predicted to produce noteworthy
findings to all stakeholders in the real-estate industry, such as potential home buyers and
existing house owners to housing developers, marketers and government policy regulators,
as well as academic institutions. The current study is organized as follows: literature review,
methodology, findings and conclusion

2. Literature review
In general, housing is an important aspect of consumption and a valuable investment to the
household. Deviation in housing price does not only affect the price itself but it will also
influence the value of the household assets. The price of residential property, similar to
any type of goods and services in a market economy, relies on the demand and supply factors
in the market. People’s demand for owner-occupied residential units is measured by the price
of
housing, the growth in the population, income and households’ rate of formation (Flavin and
Yamashita, 2002). A relevant research in the context of Malaysia with respect to the subject
matter of this current study is the study by Zainon et al. (2017) which is concerned with
the preference toward housing selection. The study found that buyers tend to give more
importance to housing price rather than other factors regardless of the city where they wish
to purchase a residential unit. The study’s conclusion is consistent with another study
done by Thaker and Sakaran (2016). Utilizing the analytical hierarchy process (AHP) to
determine which factors first-time buyers tend to prioritize when buying a house in
Malaysia, they found that price was a major determinant as opposed to other factors. An
interesting finding in a recent working paper by Thaker and Ariff (2019) revealed that
rental and number of marriages were found to have greater impact on the residential price
movement in Malaysia.
According to the authors, since the price of new houses was getting higher, it thus led to
a greater demand for existing units in the form of rentals which caused rental rates to go
up. This subsequently resulted in a higher purchase price for second-hand as well as new
houses. In Malaysia, the number of marriages increases on a yearly basis, and the
demand from young couples for residential units also intensifies, generating higher prices
for the unit. Majid et al. (2016) observed a similar trend, in which the authors highlighted
that demographic profiles such as employment, marital status, gender and types of houses
have significant influence over the housing price in Selangor, Malaysia.
Thanaraju et al. (2019) presented a slightly different argument than that of Majid et
al. (2016) and Thaker and Ariff (2019). The authors postulate that although the demand-
and supply-side factors have influence over residential prices, the most crucial factor that
affects the price of houses is the component of location. A residential project in a build-up
area will definitely pose a higher price given the facilities and development surrounding
the area. By contrast, a project in a more rural area would lower the price. Mohd-Rahim
et al. (2019), employing a survey method and around 500 respondents, found that
housing affordability has a strong correlation with income level. A higher income
level will lead to greater
PM residential affordability and vice versa. This finding is dissimilar to that claimed by Kok et al.
38,4 (2018) who stated that the housing price in Malaysia is mostly influenced by macroeconomic
shocks and the supply-side factors in the short and long runs.
The existing literature has mainly focused on macroeconomic factors to capture the
behavior of residential prices in Malaysia. For example, the study by Lu et al. (2015) measured
the factors which contribute to the house price bubble. The study showed that Consumer
548 Price Index and base lending rate had significant impact on house price variance in
Penang.
The findings were based on the econometric technique, namely, the vector autoregressive
model (VAR). Similarly, Pillaiyan (2015) noted that GDP had no significant role in
explaining the residential price behavior in Malaysia as opposed to other macroeconomic
factors (i.e. inflation, stock markets, money supply and number of financing approved)
which had important explanatory power. The outcomes of Pillaiyan’s study are in line
with the study done by Ong (2013) and Trofimov et al. (2018). Contrastively, Iacoviello (2005),
Learner (2007) and Li and Chiang (2012) argued that GDP is equally important as an invaluable
indicator for housing market. This is because the residential market can influence
economic growth via various channels such as property investments, constructions,
consumptions, industries and job opportunities. Economically speaking, a higher house price
means more accumulation of wealth and shakes the economy in the form on higher
consumption. Thus, during the housing market boom, the construction sector will accelerate
in growth and subsequently contributes to the economy.
In the broader context, the literature has pointed to various evidences explaining
house price drivers from studies conducted outside the Malaysian market. In one of the
examples, the study by Taltavull de La Paz and White (2012) which was analyzed using
econometric techniques confirmed the existence and association between macroeconomic
variables such as income level, migration level, interest rate and lending rate with
residential price in the United Kingdom. The relationship appeared to be strong during
the two structural break periods, namely, in 2001 and 2008. Macroeconomic conditions
distressed the residential prices, but the real-estate price form the state of economy. For
instance, the property market boom had a direct effect on household consumption (Girouard
and Blondal, 2001). Case et al. (2005) highlighted the influence of housing prices on real
economic activity which would strengthen in relative to the effect of the stock market with
significant drop in housing prices due to it having a much bigger outcome on growth in
output than equity price burst.
In a study by Head and Lloyd (2014), the authors examined the rise in Canadian house
prices using the canonical asset pricing model to explain how changes in rents, interest rates
and capital gain and loss taxes affected housing prices. The finding revealed that the two-
ratio explanatory power in residential prices was higher compared to rental rate. Gervais
(2002), on the other hand, studied tax treatment using a dynamic general equilibrium multi-
period overlapping-generation model, standardized for both the aggregate statistics and
income distribution in the US. The tax treatment for capital gain and loss involving
residential properties led to net welfare loss.
The existing literature has identified disposable income as a key determining factor in the
equilibrium pricing model apart from other factors such as labor cost, construction cost,
lending rate, inflation and many others (Bourassa et al., 2001; Capozza et al., 2004).
Differences in the model by way of income level incorporation as one of the main fundamental
predictors showed statistical significance influencing residential prices (Black et al., 2006;
Chan et al., 2001; Clayton, 1998). A recent study by Xu and Shi (2017) on China’s housing
market revealed that as disposable income increased, the demand for housing also increased,
thus leading to higher house prices in China. The studies by Maguire et al. (2013) and
Hussain and Malik (2011) displayed the strong association between inflation and house price
due to the cost push
inflation factor. Factors of construction such as cement, labor costs, machinery,
equipment etc. led to an increase in the cost which subsequently affected the price of
residential
properties. Sean and Hong (2014), using primary data, found that location, financial and
structural factors were the main drivers of residential price in the general context. Supply-side
As for the objective of this study, the perspective of housing supplier or developer on why perspectives of
residential house price issue persists is more important now than ever. The supply side of the residential
housing economics is considered an important piece of the puzzle in dictating residential price
price. Glaeser et al. (2005a) identify that several stringent restrictions or regulations on
housing supplier is the main contributor to the surge of residential price in Manhattan
549
borough. While in Australia; Hsieh et al. (2012a,b) found that supply-side rigidities such as
complication of infill development contribute to increase in total cost for housing developer
and this supplement in higher housing price. Whereas in the context of Malaysia, the
main factor that been imposed to the housing developer in dictating the residential price
is somewhat blurred. Nuruddin et al. (2005) show that the housing developer pointed
government regulation is one of the factors that increase in housing price. In contrary,
Lee and Khalid (2020) blamed that developer of being bias by just catering higher price
housing for the high-income earners. This conjecture need explanation from the
Malaysian housing developer, as to that a qualitative study is needed in understanding the
viewpoint of Malaysia housing developers on the question of housing price issue. Even
though quantitative studies are deemed supreme compared to qualitative studies in
current scholarly space, some question can only be answer through science of
communication (Mayring, 2000), this is due to the nature of this study aim in unweaving
the drives of residential price in Malaysia.
In summary, the selected existing literatures above have proven that researchers have
worked harder to better understand the drivers of residential prices in Malaysia and
worldwide. Unfortunately, in the context of Malaysia, the majority opinion derived from the
literature merely concentrate on the influence of macroeconomic variables over residential
prices instead of other factors. Methodologically, most of the studies are empirical in nature.
The results are possibly miXed with most results showing the different outcomes due to
the different dimensions of the research focus. None of the studies in Malaysia have
incorporated the perspective of the developer and association representing the housing sector
with regard to the residential price issue. In order to addresses the current status of
research in the Malaysian residential market, we initiated to move the literature forward.
This necessitates the utilization of a comprehensive discussion using qualitative approach
to directly obtain views from these respondents, namely (1) developers and (2) association of
housing buyers in Malaysia.

3. Methodology
We used a qualitative approach to investigate the research objectives in a more in-depth
manner. We opted for the qualitative method due to the nature of the questions developed
which specifically deal with the prevailing issue of residential price drivers in Malaysia
from supply-side perspectives. Furthermore, to make our study unique and different
from the existing literature, the current research focuses on the standpoints of the
developers’ perspectives that are mainly from medium to small-scale developers. Medium
and small-scale developers are chosen for this study because they rarely share their opinions
in the media or other news platforms with regard to housing price and affordability. In
general, developers serve as the target sample in order to obtain a deeper understanding
on the supply-side factors behind the rise of residential prices in Malaysia. Thus, the
role of developers as
intermediary between the government and home buyers in ensuring the completion of a
residential project and its delivery is crucial. Given this fact, the qualitative approach was
selected and operationalized in this research.
A semi-structured face-to-face interview was utilized in this study to help us gain a better
understanding of the relevant information in measuring the research objectives. Information
PM were sought and obtained from the respondents’ work experience in their field, level of
38,4 knowledge, and skills. The application of this method is expected to reduce the issue of
biasness and maximize the originality of the content of answers produced by the respondents,
hence enhancing its reliability as the answers are derived from the respondents’ individual
experiences, thoughts and perspectives. Therefore, the results obtained from the interview
550 analysis are expected to provide impactful outcomes. The process of the semi-structured
interview is shown Figure 6. Basically, the process starts from by preparing interview session
with the selected respondent and followed by details explanation on the objectives and
purpose of interview session. Next, is to audio record the interview session from transcribing
purpose later and also to allow for non-probing questions to make respondents interest
during the interview session. The last two steps involved are collecting feedbacks given
by respondents and conclude the interview session.
The sampling technique used in this study to select the right respondents for analysis
adheres to judgmental sampling in which only developers who actively engage in residential
projects were included. The initial plan to interview ten developers had to be abandoned as
only siX were successfully sourced for the interview. Some developers declined to participate
in the research due to their heavy work schedule and other commitments. The respondents
were approached via telephone calls and email to reserve the interview session. According to
Polit and Beck (2010), a less than ten respondents is good enough in gaining better and
detailed exploration of the subject matter. Thus, our number of respondents is consistent with
their suggestion.
As mentioned, the respondents involved in this research are mainly developers of
residential projects in Malaysia who possess a wide range of experience in the property
market. As a rule of thumb, the respondents must have at least five years working experience
in the field, for that is believed adequate to allow the respondents to provide enough
feedbacks which are more justifiable and comprehensive with regard to the subject matter.
Such is necessary as the existing literature has largely concentrated on home buyers and
investors. Moreover, the existing studies have also been largely directed toward
empirical analysis. As there have been limited studies, if any, which focus on developers’
perspectives, this would distinguish our study to that of others, making our study a
standalone in the existing literature. We believe that obtaining the developers’
understanding and views will make the findings more interesting and significant. Among
the participants selected in this study, one is unique in that the respondent is a
representative of the National House Buyers Association of Malaysia.
In the process of analysis for the purpose of discussion, all direct quotations from the
respondents are included and maintained to ensure the solidity and consistency of answers.

Explain the objectives Obtain permission

and interview from
processesthe
Engross respondents
to in
the
non- forsort
respondents
probing audio recording in
of questions purposes
order to enhance participants’ interest

Preparation for interview with the respondents

Obtain detailed answers from the respondents based on their experiences, thoughts and views
Conclusion of the interview session

Figure 6. Note(s): This figure reveals the processes involved in carrying

The process of
semi- structured out the semi-structured interview. In total, there were six steps
interview involved
The interview was conducted in English as a medium of communication. For the purpose
of easiness and confidentiality, each interviewee was labeled “R1” to “R6”. A description of Supply-side
the respondents is provided in Table 1. perspectives of
The formulation of interview questions went through a rigorous process prior to the actual residential
interview. The interview sessions included noting, for example, the number of questions, price
details of the interviewees and their professional position, with date and time clearly specified
and disclosed. Once the interview session was over, the interview results went through
551
content analysis in order to generate common themes. Each item was carefully examined to
produce valuable interpretation. The process of content analysis is basically known as the
procedure to content written materials in which the information is collected in a proper
standard format. Later, the findings were synthesized in accordance to themes obtained via
interview results. The initial step involved in the interview analysis began with carefully
listening to the audio recording taken during the interview session and then translating
all those recording items to word format. Such also allowed for the study to primarily
identify major points that the respondents wished to highlight. Next was to judiciously
review the information and come out with the physical transcription of the recording. For the
purpose of maintaining the originality of the interview contents during the transcription
process, we maintained 100% of their responses without any editing, even for discourse
fillers such as “hmm,” “yeah,” “oh yeah,” “ar,” etc. The outcomes of interview feedbacks
were divided based
on the research question and themes which later helped in differentiating the opinions of the
respondents. After the completion of the transcriptions process, we identified four main
themes, namely (1) residential market development in Malaysia, (2) factors influencing
residential price in Malaysia, (3) fulfillment of the needs and wants of middle- and low-income
earners in the residential market and the role of government and (4) developers’ view on
residential price control.

4. Discussion of findings
4.1 First theme: development of residential market in Malaysia
The interview analysis shows a miXed response on this matter; respondent proliferated that
the Malaysian residential market is doing fine albeit the slow demand which may perhaps be
due to the government’s policies on curbing the housing price and allowing all
Malaysians including foreigners to purchase residential properties in Malaysia. Furthermore,
it is applied that the house prices are categorized into three, namely, low-income earners,
middle-income earners and above middle-income earners. Therefore, the demand for
residential properties varies according to the category of income earners providing it’s for
purpose for shelter rather than investment. The housing price in Malaysia ranges according to
the construct of current market price which can unattainable for some income group and
as to that Malaysian government taken the social responsibility in fulfilling the demand of
low- and middle-income earners by introducing various incentives to increase home
ownership among Malaysians [1]. A common response elicited toward the question was;
I think the Malaysian property market is doing well although the price keeps increasing. The
Malaysian government has done many things to control the housing price and to fulfil the needs and
wants from various groups of peoples. So, I think, development wise, there is no issue
However, R4 and R6 believed otherwise. The respondents argued that the Malaysia property
market which is growing at a slow rate is not good for long-term progression. According
to them, the housing price movement is not in line with the cost of living. On average,
the minimum price of residential properties starts from RM300,000 in many states
especially Kuala Lumpur, Selangor, Penang and Johor, while the income level for low- and
middle-income earners remains unchanged. From the developers’ point of view, they
 Interviewees’ profiles
Table 1.

552

38,4
PM
Scales of
Number of years Number of years developers
Respondent Company name and (working company M: Medium & Total revenue Listed or private
code respondent’s position experience) established S: Small as of 2018 company Location
R1 Inta Bina Berhad 10 years 25 years M RM 21,199,623 Public listed Selangor
Assistant Site Agent
R2 HO HUP Construction 8 years More than 50 years M RM 28,263,000 Public listed Kuala
Company Berhad Lumpur
Manager- Commercial
R3 BINASTRA 10 years 7 years S N/A Private listed Kuala
ABLEBUILD Sdn Bhd Lumpur
Senior Project Manager
R4 Malaysian National More than 25 years 20 years N/A N/A Non-profit and non- Kuala
House Buyers political organization Lumpur
Association
Hon. Secretary General
R5 Ivory Properties Group More than 30 years 20 years M RM 10,532,000 Public listed Penang
Berhad
EXecutive Officer
R6 Grand Global Medini Sdn 20 years 5 years S RM 871,759 Private listed Johor
Bhd
Manager
Note(s): This table shows the profile of the respondents and the code of interviewees. Overall, the total number of respondents are siX (n 5 6). The respondents are from
four main states in Malaysia, namely Kuala Lumpur, Selangor, Penang and Johor
argued that the price charge per unit cannot be lower due to higher material cost and hidden
costs. R6 stated; Supply-side
perspectives of
With regard to housing market development, I personally feel, it is at slow growth and it will still pick residential
up slowly in the future. How can we sell the units if the material costs are higher followed by the
income level of buyers which is not consistent with the current cost of living? price
This miXed reaction identifies the underlying notion that income inequality is the
pertinent issue relating to the development of Malaysia residential market. The government 553
via its policy has somewhat successful in diverging the price problem of the residential
properties for the low- and middle-income earners even though it’s not sustainable solution
as the fiscal constrain cannot be put aside. Over the years several efforts have undertaken
by the Malaysian government through legislation, financing, regulation and programs to
amend the price hike (Kamal et al., 2015); however, the matter surrounding income
inequality is still in an indeterminate state. As because the core issue of it can propagate to
income inequality problems ascertained due to the stagnation of wages for the low- and
middle-income earners even though there is increase in education attainment (Record et al.,
2019). Department of Statistics Malaysia reported that the low- and middle-income earners’
median household income are RM6,275 and RM3,000 respectively with an average
household of four members in a family. The average earning is therefore RM4,637.50 for
both groups. This means that the earnings of the upper income group are higher than that
of the two by 41.75%. The middle- and lower-income earners are obviously unable to afford a
residential property due to the high price It also can be said that higher income inequality
contributes to that high-income households accruing more houses and this can contribute to
the developer catering for only high-income earners and discarding the lower- and middle-
income earners; this predicament is where the “invisible hand” dictates developer choice in
achieving economic efficiency by profit maximization.This argument was also consistent with
the findings made by Lu et al. (2015), Pillayan (2015) and Ong (2013) in which the authors
postulate that on average, the price of residential properties all over Malaysia has
significantly increased over the years higher inflation which were linked to income level.

4.2 Factors influencing supply-side drivers of residential price in Malaysia

With regard to the factors influencing residential price in Malaysia, this theme received more
or less similar responses from the developers’ point of view. The developers argued that the
rise in material costs has led to an increase in residential prices in Malaysia. In addition to
material costs, one of the respondents also shared that the labor cost has gone up as well. In
the case if the costs go beyond the planned budget, the developer has to cover the extra cost
involved, thus affecting their cost side. Another developer highlighted an interesting
point where the existing residential owners tend to increase the value of their house
during the liquidation process in order to sell at a good price. This has led to price
competition between existing and new residential units. One reason for this may be due
to price speculation as existing owners would obviously opt to sell at a higher price.
Surprisingly, the demand for existing residential units are higher compared to newly build
houses because of the following:
(1)existing houses are ready to occupy, (2) quite flexible in terms of administration matters,
(3) some are even fully furnished and (4) other factors. In Malaysia, the demand for
existing houses is relatively higher compared to new houses for both purposes such as buy
and rent. This has caused a lot of pressure on developers, especially the small-scale ones.
Consistently, Jakabovics et al. (2014) and Geithner (2014) also argue the same point
where nature of investment in real estate causing hike in housing price especially for rent
units. Following are responses generated by the respondents with regard to this matter:
The material costs become so expensive until we have to bear the extra cost. If this is the case, then
how can we charge a lower price for the houses? We (the developers) receive more impacts such as
PM unable to sell residential units, pressure from government and to face heavy competition in the
38,4 industry (R1)
Yes, the residential price nowadays is so high because of higher production costs such as
materials and labour cost (R2)
I personally think that the speculation in residential market is also playing an important role in the
pricing issue. Some buy houses for investment purpose, later when they want to sell, they will
554 quote a higher price for the existing unit to realize good capital gain. If this is the case, then the
impact would be on the developer’s side as well when building new houses and setting the price. I
believe this issue will cause heavy competition in terms of price between existing and new
houses (R3)
The predicament surrounding relationship between land price (land market) and housing
price (housing market) is applied through a two-face theoretical argument; neoclassical and
Ricardian. As Ooi and Lee (2006) put it: “Do high land prices contribute to high property
prices (Neoclassical)? Or is it the other way around, high property prices result in high
land prices (Ricardian)?” (p. 96). Innately, increase in land scarcity either by naturally or
artificially will restrict the supply, this in which leads to increase in the land price and thus
pushes the housing price to all time high (Green et al., 2016; Liang et al., 2016; Hui et al., 2014;
Moran, 2008; Glaeser et al., 2005b; Mayo and Sheppard, 2001; Hannah et al., 1993). This
can also be to postulate in a different proposition as in the increase of housing price will
usually tends to fuel for higher supply of housing capital, with that it contributes to higher
demand for land and finally higher land prices (Wen and Goodman, 2013). However
empirical evidence is somewhat miXed, Ooi and Lee (2006) found that land supply through
its price movement have less causation to house prices in Singapore; this outcome was
also similar for Hong Kong (Tse, 1998); Spain (Altuzarra and Esteban, 2011). In contrast, study
examining land and house price in China shows that housing price have greater influence on
land prices (Gao and Mao, 2003; Wen and Goodman, 2013). Whereas, Kim et al. (2008) and
Potepan (1996) shows that relationship between housing price and land price in the United
States market is applied through bidirectional causality. Directing to Malaysia through R1
and R2 developer viewpoint, the relationships between the land cost through its prices and
housing price can be generally assigned to cost-driven perspective or neoclassical rent theory
argument. The lack of land banks owing rapid urban growth (see Figure 7) near key economic
centric region such in the region of Klang Valley correlates increase in housing price, as
consequence small-scale developer’s profitability shrinks exponentially because developers
are very much sensitive to land price because developer cannot readily pass short-run
variation in land cost to the buyer Somerville (1996).Indirectly, the more elastic the supply of
land the more elastic will housing supply will be (Grimes and Atiken, 2010).

Share of People Living in Urban Areas

80
70
Percentage (%)

60
50
40
30
20
10
0
Figure 7.
1960
1962
1964
1966
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

Share of populations
living in urban areas Year
(World Bank, 2019)
Urban population (% of total)
Interestingly, a representative of the Malaysian National House Buyers Association
argued that apart from the issue of increase in material and labor costs, the Good and Supply-side
Services Tax (GST) and its removal after the change of government and the introduction perspectives of
of Sales and Services Tax (SST) has caused the unchanging cost of production. According residential
to the respondent, construction materials and property transactions are not SST- price
exempted;
There is no change in price of materials although GST has been removed and replaced with SST. Not
all materials are exempted under this new tax called SST (R4) 555
R6 was of a different view when it came to the factor influencing residential price. According
to the respondent, location plays a major role in determining the cost. If the location is a
built-up location equipped with facilities like universities, theme parks, shopping malls,
etc. this attribute to increase in price due to the locality socioeconomic status and
conformability, (Pollakowski, 1982; Rosen, 1974; Mohr, 2001; Greenstone, 2017; Alias et al.,
2011). Similar views also postulated by Anacker (2019) which the paper argued the supply of
houses mainly driven by cost involve in building the houses which subsequently affecting
housing affordability. For example, in Bandar Iskandar, Johor Bharu, the starting price for
a newly-built condominium is about RM400,000 and above due to its built-up location. R6
said:
It is very common that location plays an important role in the price of a residential property.
Moreover, I also think that urbanization will have a direct impact on housing price (R6)
Aside to that, rapid urbanization also can be on of causes to the price sharp increase due
to heavy demand from local as well as foreigners (Hay, 2013; Ley, 2010; Lennartz, 2017);
as defendant by R6. This finding enhances that urbanization through the viewpoint of the
developer have directly contributed to residential price, this can be said due to demography
migration and expansion (Wang et al., 2017). As agglomeration contributes increase returns
to scale with that there is a need for sufficient labor to accommodate it, and labor need
housing; this how cities consolidate its existence and most importantly contribute in the rise
of housing price through the real-estate demand. Figure 7 shows the incremental rise of share
of people living in urban areas at Malaysia; latest was 75.44 % in 2017.
In summary, from the above discussion, the respondents clearly had a range of views,
from smaller to wider perspectives. The most crucial points highlighted by the
respondents were cost of production, taxes, existing residential unit price, location and
urbanization.

4.3 Fulfillment of the needs and wants of middle- and low-income earners in residential
markets and the role of government
The developers were asked on how they cater for lower- and middle-income earners
even though the price of property has increased over the time. The majority of respondents
agreed that the Government of Malaysia has played a significant role in fulfilling the
needs and wants of these groups of people. Over the years, during the Malaysian budget
plan, the Government will allocate a certain amount of funding to enhance affordability for
lower- and middle-income earners. In addition, there are various sources of incentives
given to these groups to allow them to own a home. An example is the introduction of
Malaysia’s People Housing Act (PRIMA), low-cost housing projects all over the Malaysia to
cater for the demand of low- and medium-income groups.
In addition, under the scheme of “My First Home Scheme” focusing on Malaysian
youngsters, most residential units targeted for this group range from RM100,000 to
RM400,000. The applicant must be below 35 years of age with a household income level not
exceeding RM6,000. To reduce the legal burden, the Government also has waved the stamp
duty for first-time buyers, especially low- and middle-income earners (Cagamas, 2013). The
Government has also promised to fulfill the demand for affordable houses for all
Malaysian
via various implementations of the national housing policy such as RUMAWIP,
Perumahan
PM Awam DBKL, Skim Rumah Selangorku, Skim Perumahan Mampu Milik Pulau Pinang, Skim
38,4 Rumah Pertamaku, Skim Pinjaman Perumahan and others.
From the developers’ perspectives, the Government is trying to do their best to meet the
demand of these income groups. Some developers are even forming partnerships in building
more low-cost and affordable homes to Malaysians. The developers believe that the
collaboration between the government and private sector is important to make sure more
556 affordable residential projects are taking place. The Prime Minister Tun Dr Mahathir
Mohamad also called for this collaborative work where the government should greet the
private sector’s engrossment in low-cost housing projects which is hoped to assist the
nation’s aspiration toward a developed-nation status by 2020 (Prime Minister statement in
press: The Sun, 18 February, 2019 front page). A respondent expressed;
With this regard, the Government of Malaysia is doing their job nicely in delivering affordable
houses to low- and middle-income family. There are plenty of incentives and projects introduced by
the Malaysian government to make this happen such as PRIMA, RUMAWIP, etc. Furthermore,
we (developers) are working closely with the Government to form and broaden up affordable houses
all over the Malaysia
The developers were further inquired over the current regulation(s) on the mi X of low-income
units under developer permits. The responses elicited were mi Xed. R4, R2, R1, R5 argued that
the current regulation with regard to the mi X of low-income units under the development
permit is still fine as the government is trying their best to ensure that residential units
are easily accessible and affordable. This argument is supported by their philosophy to
contribute toward their corporate social responsibility (CSR). In which Holmes (2002) argued
that when corporate social responsibility is related to property development, it will generally
be associated with the question sustainability, ethical and social. Hong et al. (2008) found that
developer from Malaysia placed more emphasize and commitment on CSR, this
singularity can be said due to developer are excepted to be more socially responsible as
because to differentiate them from the fierce competitive market and in some cases,
developer provide more that designated regulation (Davids, 1973). Under a normal
condominium project, for instance, a certain percentage of the total units would be allocated
for this purpose. However, the size would be at a smaller scale, for about 450–650 square
feet due to material costs. The
unit would likely be a studio type unit and enough a family of three to four members.
I think it is fine with regulation because we want to give opportunity to everybody (R4)
We are willing to adhere to this regulation as we can contribute to our corporate social
responsibility (R5)
Our company is fine as long as the cost is manageable (R2 and R1)
R6 highlighted that although it is doable, it is quite difficult to execute especially for a
new developer. This is because there are some areas where the price of land is expensive.
When selling, the price would obviously be higher to mark-up the land cost. Given this
regulation, it will somehow affect their profit margin. In addition to that, in normal
circumstances, when the construction of residential units begins, there is already an
allocation of at least 40% for Bumiputeras and a further discount from the initial price of
about 10–15%. This further affects their profit margin. Apart from that, R3 stated that as a
smaller-scale developer, loan approval is a problem as some banks are reluctant to
approve a loan for a project involving low- and middle-income earners. A rejected loan
application would cause the developers to lose their buyers and further disrupts their cash
flow.
Yes, it is a good to share a miX of low-income units, but how about the cost of production such as land
price? The land seems to be of shortage. Plus, the price of land is expensive. For a smaller scale
developer, we will have a cash flow problem due to higher costs. To get sales is not easy
because
 some loans are easily rejected due to poor cash management by buyers and we cannot sale the units,
affecting our cash flow position Supply-side
perspectives of
Generally, most of the respondents agreed that the government support in helping low- and
middle-income families is an undeniably good effort. They have introduced various
residential
incentives to offer affordable houses to these groups, including forming a partnership price
with the private sector to build more low-cost houses. With regard to the miX of low-price
units in a development permit, the matter has received a mi Xture of views. For established
developers, it is a fine regulation because they believe it will contribute in terms of 557
corporate social responsibility. However, smaller-scale developers are concerned about the
shortage of land, land price and discounts followed by bank approval and poor sales.

4.4 Developers’ opinion with regard to residential price control

This section asks the respondents on ways to control the issue of rising residential price
in Malaysia, again prompting different points of views. In general, most of the developers
agreed that everyone including developers, contractors, the authority, financiers and buyers
in the industry must play an important role. According to them, rather than a one-party
involvement, everyone is linked in this specific industry. Developers and contractors are
facing the issue of higher production costs when building residential units. Therefore, there
must be different methods in building a project. For example, in some countries, the use
of Industry Based System (IBS) in property construction has been implemented. This method
is considered far cheaper compared to the classical method of construction in the long run. As
for a start, Malaysia government mandated that public projects should comprise at least 70%
of IBS (Khalil et al., 2016). Whereas for private sector, lack of economics of scale is major
hindrance in adopting IBS (Yunus, 2017) and due to that higher capital cost is occurred
(Blismas and Wakefield, 2009; Kamarul et al., 2010). With that, if there is synergy
between everyone in the industry the problem of economics scale can be discarded.
Adopting new technologies will lead to higher productivity and reduce the dependency
toward foreign workers. Together with the adoption of new technologies, developers also
need to consider the use of localized equipment and materials instead of investing on
expensive imported materials which would increase the cost of construction and residential
price. A respondent stated:
All of us need to play an important role in controlling housing price. Not only one party is
involved. We also consider the use of different techniques such as the Industry Based System (IBS) in
order to overcome the issue of production costs
Providing a different perspective, the representative of the Malaysian National Buyer
Association (R4) shared that there must be a continuous review of regulations and monitoring
when it comes to residential prices. The Malaysia government need to continuously
design better plans without affecting local as well foreign home buyers to make sure
everybody has equal accessibility to own a property. Rules may change following the
formation of a new government. In Malaysia, there has been some changes in rules and
regulation which may serve the developers, buyers and many other parties well. In addition,
control over the rental and selling of second-hand houses need to be monitored closely as
some owners tend to increase the price drastically when liquidating their assets which
affect the sales of newly-built houses. This view is consistent with the study done by
Thaker and Sakaran (2016) and Thaker (2019) which found that the formula of median
multiple affordability in Malaysia was “seriously unaffordable” with the median value
exceeding 3.0 of housing
affordability. This is not a good sign especially for future generations of low- and
middle-income earners. The view of R4 is also in line with that of the KRI director which states
that there is a need for regulation and better planning to shrink the exploitation of market and
PM the monopoly of higher residential price owned by certain group of developers (The Sun
38,4 Daily, 2019). Additionally, the planning or regulation which is going to take place must create
a healthy competitive market in general. R4 said;
I think, new rules and regulations including better planning are needed to overcome the issue of
higher price in residential market in Malaysia. This includes newly-built houses as well as second
hand houses. One way to control the price is via good and viable rules and regulations because
558 everyone adhere to it once implemented
R4 further argued that there is a need to consistently monitor the regulations imposed.
For instance, the price ceiling for the property value should be revised from time to time
as the economy is facing yearly inflation which will affect the land cost and materials.
Thus, as an incentive, the government should consider a reduction of infrastructural fees
and need to understand the cost of development components thoroughly. The
respondents also emphasized that as far as the miXed unit development is concerned,
incentives should only be given if the development is awarded the Green Building Index
GOLD (GBI GOLD). More incentives similar to this need to be offered to further increase
the quantity of miXed units. Subsequently, more affordable houses will be available in the
market. R4 shared;
.. .the regulation has to be changed and reviewed on consistent basis by looking at the current
economic situation. And also, more incentive must be given to developers to cover the cost of
production. If there is something to back up the cost, obviously we can offer more residential
units which are affordable
R3 and R6 shared the view that more partnerships are needed between the government and
small-scale developers in developing more low-cost housing projects. Given more
partnership, the costs can be divided accordingly, thus reducing the cost of building the
residential units. As small-scale developers, it is very important for them to deliver their
promises on time without any delay and furthermore, the demand from local buyers is
relatively low while the demand from foreign buyers is higher. This definitely will increase
the housing price. If there is enough support from the government such as land support,
production costs sharing, utilities and other stuff, developers believe that they will be able to
offer more affordable units. Abdul-Aziz et al. (2006) capitulate by showing the existence
of highly competitive nature in housing sector. Moreover, according to them, the design
of houses keeps changing in accordance with time and pace. Today, the demand from
foreign
buyers is getting lesser as the current rules and regulation are tightened due to the “Malaysia
My Second Home” (MM2H) program and the rarity for foreigners to obtain loans from banks.
According to the respondents, this matter has further caused them to suffer losses due to less
demand. In light of this scenario, the respondents argued over the possibility and likelihood
for them to offer affordable units given the pressure over supply. They said;
Our company is not a well-established company, therefore, the support from government is less. We
hope we can have more partnerships with the current government to develop further the property
market in Malaysia (R3)
Rules and regulation have been changed, subsequently causing pressure on our side where we
cannot sell the existing units with a good price which can at least cover the cost of production.
Last time, we have many foreign buyers in Johor and Penang, but now the demand from them is less
due to tighter rules. For example, like MM2H (R6)
In summary, the developers have recommended some suggestions in order to curb the rise of
residential price in Malaysia. The recommendations include to: (1) change construction styles,
(2)use localized materials in building the property, (3) produce better and consistent reviews
of rules and regulation, (4) offer more incentives to developers and (5) encourage more
partnerships between private and government agencies in offering affordable houses.
5. Conclusion
The objective of this study is to highlight the supply-side drivers which influence Supply-side
residential price in Malaysia. The sample of developers (mainly from medium and small- perspectives of
scale developers) are chosen in this study were from Kuala Lumpur, Selangor, Penang residential
and Johor. The analysis was carried out using outcomes obtained from the semi- price
structured interview with siX developers. We have identified four important findings via
interview analysis. First, the general overview of residential market development in 559
Malaysia was positive, moving at
a good pace and growing slowly. However, the issue of unaffordability and costs involved in
construction remained a hurdle. Second, the factors influencing the price of residential
properties in Malaysia were deemed to be the costs of construction, taxes, existing units,
location and urbanization. The third analysis dealt with catering for the demand for
residential units among middle- and lower-income groups. The feedback obtained was
consistent across all respondents whom all believed that the government support in
providing low-cost houses was good and supported by various incentives. However, a
concern was expressed by small-scale developers who argued that it was quite difficult
for them to offer low-cost units for middle- and low-income earners due to land shortages,
land prices and bank approval which subsequently caused poor sales. The final analysis
touched upon the developers’ view on price control strategies for residential units. They
suggested different methods to monitor this aspect which included the use of various
construction styles, the promotion of local materials instead of imported ones, the
continuous review of
rules and regulations, the introduction of more incentives and to form partnerships in
affordable housing projects between the government and private companies. This study
claims two policy implications, namely, (1) theoretical and (2) managerial implications.
Theoretically speaking, since this is a study that dealings with property price and property
policy literatures, we believed, it will enrich the existing literature available in the context of
residential price drivers from supply-side perspective. Furthermore, our findings rely
upon on qualitative approach with the person who is directly linked to property market
and the results are comprehensive enough to contribute to the literature. In term of
managerial implication, this research obviously plays a significant factor in identifying key
elements from supply-side drivers of residential price. Given this fact, we believed, it will
benefit various parties in real estate such as home buyers, marketers, government
agencies and academic institutions. For example, the key findings from this study are very
important to the Government of Malaysia in designing a better policy to accelerate the
development of property market in Malaysia while fulfill the expectation of different
groups of buyer and developer. In light of these logical explanations, future research may
wish to prioritize the factors causing the change in residential price from the developers’
perspective, along with an
empirical investigation on the effect of existing houses toward new housing projects, and the
effect of migration on housing price in Malaysia. Furthermore, future research also may look
at different respondents such as buyer or government agencies with regard to demand
and supply sides of residential prices in Malaysia.
Note
1. The perceived responsibility of government of playing role in housing is due to the fact that free
competition does not provided a positive outcome for the people even if the deemed economic
efficiency or outcome is maximized (Quingley, 1999).

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564 Corresponding author

Hassanudin Mohd Thas Thaker can be contacted at: hassanudint@sunway.edu.my

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