Malaysia property sector: Performance analysis and portfolio diversification benefits within sub-sector

Abstract

Purpose

Because Malaysia decided to liberalize its property sector, investors have shown a considerable interest in the country’s property investment. Divided into five sub-sectors, Malaysia’s real estate is sought actively by foreign investors. However, to date, the sub-sectors performance analysis has never been researched for the purpose of investment diversification within the property sector. This paper aims to examine the performance of sub-sectors in the property market, namely, residential, commercial, industrial, agricultural and development land. This paper also assesses the portfolio diversification benefits within the sectors.

Design/methodology/approach

Quarterly data from 2002 or 2014 are used to analyze the performance of the Malaysia property market. The analysis is conducted in three phases, pre-liberalization, post-liberalization and overall period, because it considers the liberalization policy introduced in 2009. Statistically, the risk-adjusted return featuring Sharpe’s index is used to observe how these sub-sectors perform relative to each other. Correlation analysis is used to observe the existence of diversification benefits in terms of a Malaysia property context.

Findings

It is found that Malaysia’s real estate sub-sectors have different rankings during the pre- and post-liberalization periods. The difference is due to changes in their average return and the risk. During the post-liberalization period, risk for all sub-sectors has increased but has been well compensated by the return. The residential property sector maintains its ranking position as the best sub-sector for every risk investor’s encounter.

Research limitations/implications

Due to wide range of differences and non-uniformity of costs associated with housings, for example tax rates, rental stream, LTV and others, this research focuses on values and data supplied by NAPIC only.

Originality/value

Although performance and portfolio diversification benefits have been tested in many Asian countries, none has tried to assess the Malaysia property. This research enables the policy maker to be informed on whether the sub-sectors are performing in accordance to country’s requirement and which sub-sectors need to be improved further.

Citation

Zull Kepili, E.I. and Masron, T.A. (2016), "Malaysia property sector: Performance analysis and portfolio diversification benefits within sub-sector", International Journal of Housing Markets and Analysis, Vol. 9 No. 4, pp. 468-482. https://doi.org/10.1108/IJHMA-08-2015-0043