Housing bubble, affordability and credit risk to banks

A Malaysian perspective

Bibliographic Data

ID12549633
AuthorsAlex Kae Lun Lee (0000-0002-4130-1016, Monash University Malaysia, corresponding author), Jothee Sinnakkannu (0000-0003-2152-6514, Monash University Malaysia), Sockalingam R Ramasamy (0000-0002-7028-9589, Monash University Malaysia)
Year2020
Volume26
Issue4
Pages619-652
Publication date2020-07-02
Open AccessNo
TypeARTICLE
VenueJournal of the Asia Pacific Economy (JOURNAL)
Journal identifiersISSN: 1354-7860 • E-ISSN: 1469-9648
PublisherRoutledge (PUBLISHER • GB)
DOI10.1080/13547860.2020.1786960
OpenAlexW3038507461
LanguageEN
Citations received1
References cited25

The continued rise in house prices has sparked increasing interest in housing affordability in Malaysia. Middle-income-earning buyers, who fear that house prices may increase to a level beyond their future financial capacity, took on excessive leverage and overextended their current financial capacity. This increases their probability of default, which is unfavourable to the banking industry providing these mortgages. This study examined the impact of rising house prices on housing affordability in three urban regions in Malaysia and found that house prices in these cities, especially landed houses, were unaffordable for middle-income-earners. This study also examined the impact of a collateral valuation loss to the banking system from the potential decline in house prices, by employing a solvency stress test. The study found that the banking system remained fairly capitalised to survive a mild single-risk factor financial shock of the equivalent of house price declines in the 1997 Asian Financial Crisis

Bubble · Business · Credit risk · Economic bubble · Economics · Financial system · Perspective (graphical · Housing Market and Economics · Housing, Finance, and Neoliberalism · Urban and Rural Development Challenges · Finance

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