Detecting Malaysian Housing Bubbles

Abstract

This paper examines whether Malaysia is facing an impending housing bubble by using a graphical analysis, logical deduction and two statistical tests. Our research results are robust and supported by a three prone approach: Logical deduction working on the historical price trend based on most recent research findings on bubble; testing the stability of the price cycle and a statistical test modified and formulated in accordance with the Malaysian context to analyze the price trend in the local property market. We show that housing bubble burst is not imminent as yet in Malaysia which is in agreement with Bank Negara Malaysia Report. However, our findings reveal that Malaysia has been experiencing a continuous and increasingly steeper upward movement of house prices without breaks since mid-2009. Exuberant expectation of investment profit seems to be building up continuously, an indication of a strong likelihood of a housing bubble building up. Our findings call for the attention of the government to this development and to take necessary intervention measures.