Abstract

The main objective of this research is to investigate the relationship between house price with macroeconomics variables - Gross Domestic Product per capita, inflation rate, Base Lending Rate and amount of household loan disbursed for purchase of residential properties. We try to use these variables to examine if they could trigger a housing bubble to burst in Malaysia. Granger Causality results show that there is univariate relationship from house price to Gross Domestic Product per capita. Though house price and other macroeconomics variables do not Granger–cause each other in short run, but these variables are cointegrated in the long run, i.e. there is no evidence of house price bubble in Malaysia. We suggest that soaring house prices in Malaysia is being supported by the large inflow of foreign funds into the housing sector and the unresponsive supply of houses.

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