Wealth Effect or Credit-Price Effect? Evidence from Malaysia

This paper examines the dynamic linkages between house price indices, interest rates and stock prices in Malaysia. We find mixed evidence of credit-price and wealth effects. For Malaysia as a whole, and for all houses, there is a wealth effect. For several specific types of housing (terrace, detached, semi-detached) there is a credit-price effect. We find much more evidence of a wealth effect in the developed states of Penang and Selangor. A likely explanation is that in these states, compared with the Malaysian average, housing is relatively expensive, income is relatively high and real estate is used much more as an investment vehicle by both wealthy Malaysians and foreigners.