Inter-relationships between stock index with residential properties and indirect property investment in Malaysia

Abstract

The implication of this study is to ascertain the wealth effect and credit price effect from various property investment vehicles to Malaysian stock index, where this can provide a guide for optimum investment portfolio decision making by understanding various characteristics. This study utilizes various econometric tools in VECM by exploring inter-relationship between stock index with residential properties and indirect property in Malaysia. The correlation exists between stock index and property markets by common exogenous factors, such as GDP, T-Bill rate and other contagion factors. By variance decomposition, short-run indicated the significant shock from Malaysian GDP, whereas significant long-run shock from stock index to various house price index and indirect property investment, except own shocks. Contagion effects from Singapore exist, particularly to Kuala Lumpur, Selangor Penang and Johor semi-detached house price index in short-run, possible because of medium class income earning in preference in upgrade their house which benefited by increasing Singapore business activities with Malaysia. By applying Granger causality test, it was found that there was a mixture of wealth effect and credit price effect in various locality and type of properties. As for indirect property investment, interestingly, Bursa Malaysia property index having wealth effect from the Bursa Stock index, whereas, S&P Malaysian REIT index experienced creditprice effect, which adversely performed to Bursa property index. Lastly, in short-run, it proven that inflation do caused the house price index, thus housing investment can be inflation hedged.