The Malaysian Property Boom and Bust Cycle: History Repeating?
Carmelo Ferlito
Institute for Democracy and Economic Affairs (IDEAS), Kuala Lumpur, Malaysia and INTI International College Subang, Subang Jaya, Malaysia
Please cite the paper as:
Carmelo Ferlito, (2018), The Malaysian Property Boom and Bust Cycle: History Repeating?, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
This paper has been included in the publication
“The 2008 Crisis Ten Years On: in Retrospect, Context and Prospect Paperback”
Abstract
According to Mark Thornton, we could be very close to another major economic crisis. Ten years have passed from the so-called Great Recession and Thornton’s prediction confirms my view according to which business fluctuations are pervasive, and the crisis that emerged in the Western world in 2007 is just the latest and most evident manifestation of such dynamics. I have expressed the idea that business cycles are unavoidable by developing the doctrine of the natural cycle. In the present paper I used that framework in order to describe the evolution of the Malaysian property market in the last decade in the context of the general development of the national economy. In fact, it seems that this evolution presents many features of the cyclical dynamic that brought about the Great Recession after a ten year delay.
Hi Carmelo,
Thanks for your interesting paper that clearly shows the current Malaysian challenges.
I wounder if you can add some information about the balance sheets of banks and the process of securitization in the capital markets.
Maria
Dear Maria,
at the moment I do not have bank information readily available. However, I can tell that the banking system appears to be more solid than it was in the US ten years ago, in reference with the loan/mortgage market. Malaysia applies quite strict down-payment rules and banks are not exposed as they were in the Western world.
Also a market for derivates did not emerged.
Thanks Carmelo for your information about the risk management trends.
Does the Central of Malaysia publish financial reports including this kind of information?
Maria
Hello Maria.
They publish a bulletin but it lacks detailed bank information, reporting only synthetic info.
I.e.: http://www.bnm.gov.my/files/publication/qb/2018/Q3/p4.pdf
Carmelo,
I really enjoyed your paper, especially your review of the literature and thoughts on a ‘natural cycle.’ I’m also looking up your earlier work. Your summary of the Austrian cycle was useful for me to re-familiarize with. Another cyclical breakdown you might engage with is Keynes’s analysis of Bull and Bear Markets in his Treatise on Money. Much of that fits with your outline on changing expectations.
I’m not sure how relevant this is to your current project, but in reading your paper I had the thought extending Claudio Borio’s (2014) work on the ‘financial cycle’ to a nation like Malaysia. Anyway, thanks for your interesting work.
Cheers!
Dear Jacob,
many thanks for your message, which is source of many good points. Indeed, Keynes’ “Treatise on Money” presents a lot of common points with the Austrian view and Lachmann identified “expectations” as the potential alliance link between Austrians and Keynes (he was strongly influenced by Shackle).
Thanks for pointing out Borio’s work. I quoted his 2012 paper in my “At the roots of economic fluctuations”. I will look for the paper you mentioned, it might be useful, together with Keynes, for a paper I am preparing about “Business cycles and hermeneutical processes”.
Thanks again and keep in touch!
Interesting description of Malaysia property market over the past ten years. The analysis is correctly framed in the business cycles context. You are right, what is needed is a sound interpretative ‘theory’, which is the necessary prerequisite for reading statistical findings. The instrument to use? In your conclusions you propose structural markets reforms that is, unfortunately, a main ‘sport’ of many policy makers. In Italian we say: ‘to change something to not change anything’. My suggestion is to deeper analysis of cycles to find out more effective instruments: you can find an interesting debate during the ’20s in Europe, exported in US in the ’30 after nazism in Germany.