THE SIGNIFICANCE OF RESIDENTIAL PROPERTY IN MALAYSIAN PROPERTY SECTOR Muhammad Najib Mohamed Razali Hishamuddin Mohd Ali Department of Property Management Faculty of Geoinformation Science and Engineering UNIVERSITI TEKNOLOGI MALAYSIA INSPIRING CREATIVE AND INNOVATIVE MINDS 1

The Content Introduction Methodology Findings Conclusions INSPIRING CREATIVE AND INNOVATIVE MINDS 2

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 INSPIRING CREATIVE AND INNOVATIVE MINDS 3

Introduction INSPIRING CREATIVE AND INNOVATIVE MINDS N GDP (billion)386.6 GDP growth5.1% GDP- PPP GDP Sectors Agriculture9.7% Industry44.6% Services45.7% Labour Force (million)11.2 Unemployment3.7% Table 1: Economic and Financial Profile of Malaysia:

Introduction INSPIRING CREATIVE AND INNOVATIVE MINDS 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 rate5.8% Property Transaction Volume (Billion)3.7 Business Competitiveness Index23 Corruption Perception Index43 5

Introduction INSPIRING CREATIVE AND INNOVATIVE MINDS Table 1: Economic and Financial Profile of Malaysia: 2008 (cont’d) World Competitiveness Index Economic Performance8 Government Efficiency19 Business Efficiency14 Infrastructure25 Asia Pacific7 Overall19 Real Estate Transparency Index23 Source: WEF (2008), RCA (2008), Transparency International (2008), CIA (2008) and JLL (2008) 6

Introduction INSPIRING CREATIVE AND INNOVATIVE MINDS Table 2: JLL Global Real Estate Transparency Index: 2008 Source: WEF (2008), RCA (2008), Transparency International (2008), CIA (2008) and JLL (2008) High TransparentTransparentSemi TransparentLow TransparentOpaque CanadaIrelandChileKuwaitBelarus AustraliaHong KongLatviaTurkeySudan USASingaporeRussiaColombiaCambodia New ZealandGermanyEstoniaPeru UKFinlandSlovakiaUruguay NetherlandsDenmarkDubaiChinaVenezuela FranceSpainGreece SwedenAustriaBulgaria BelgiumNorway 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 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 INSPIRING CREATIVE AND INNOVATIVE MINDS 8

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 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 INSPIRING CREATIVE AND INNOVATIVE MINDS 9

Methodology INSPIRING CREATIVE AND INNOVATIVE MINDS Table 3: Property Sector Performance in Malaysia *Value in USD Million Source: National Property Information Centre (2008) 10 YearResidentialCommercialIndustrialAgriculturalDevelopment LandOthersTotal VolumeValue%VolumeValue%VolumeValue%VolumeValue%VolumeValue%VolumeValue%VolumeValue

Methodology INSPIRING CREATIVE AND INNOVATIVE MINDS Figure 1: Sector Performance in Malaysia:

Methodology INSPIRING CREATIVE AND INNOVATIVE MINDS Figure 2: Residential Property Performance:

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 4: Property Sector Performance : Risk Adjusted 13 Residential Type Average Annual Return (%) Ranking Annual Risk (%) Ranking Risk/ Return Ratio Total Residential Commercial Agricultural Industrial Development Land Other

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 5: Residential Property Performance Analysis Residential Type Average Annual Return (%) Ranking Annual Risk (%) Ranking Risk/ Return Ratio All Houses Terraced High-rise Detached Semi- detached

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 6: Residential Property Performance: State 15 State Average Annual Return (%) Ranking Annual Risk (%) Ranking Risk/Return Ratio Perlis Kedah Penang Perak Selangor Kuala Lumpur Negri Sembilan Malacca Johor Pahang Terengganu Kelantan Sabah Sarawak

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 7: Residential Type Correlation Matrix: TerracedHigh RiseDetachedSemi Detached Terraced1.00 High- rise Detached Semi- detached

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 8: Correlation Matrix between States in Malaysia 17 PerlisKedahPenangPerakSelangorKL Negeri Sembilan MalaccaJohorPahangTerengganuKelantanSabahSarawak Perlis1.00 Kedah Penang Perak Selangor * Kuala Lumpur *1.00 Negri Sembilan *1.00 Malacca Johor Pahang * Terengganu Kelantan Sabah Sarawak

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 8: Correlation Matrix between States in Malaysia 18 PerlisKedahPenangPerakSelangorKL Negeri Sembilan MalaccaJohorPahangTerengganuKelantanSabahSarawak Perlis1.00 Kedah Penang Perak Selangor * Kuala Lumpur *1.00 Negri Sembilan *1.00 Malacca Johor Pahang * Terengganu Kelantan Sabah Sarawak

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 9: Correlation Matrix for Property Sector Performance in Malaysia 19 Total Property ResidentialCommercialIndustrialAgricultural Development Land Others Total Property 1.00 Residential 0.83*1.00 Commercial 0.73* Industrial Agricultural Development Land * * Others * Significant correlation (p < 5 per cent)

Findings INSPIRING CREATIVE AND INNOVATIVE MINDS Table 10: Rank Correlation Index Spearman’s coefficient (R s ) Property Sector Performance Residential Property Performance Residential Property Sector Performance- State

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. INSPIRING CREATIVE AND INNOVATIVE MINDS 21

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. INSPIRING CREATIVE AND INNOVATIVE MINDS 22

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. INSPIRING CREATIVE AND INNOVATIVE MINDS 23

Thank you! Muhammad Najib Mohamed Razali Hishamuddin Mohd Ali Department of Property Management Faculty of Geoinformation Science and Engineering UNIVERSITI TEKNOLOGI MALAYSIA ; Ph: / INSPIRING CREATIVE AND INNOVATIVE MINDS 24