FACULTY OF SCIENCE AND TECHNOLOGY

SEMESTER I, SESSION 2016/2017

PROPOSAL
TITLE:

THE RELATIONSHIP BETWEEN TRANSPORTATION AND

HOUSING PRICE
IN MALAYSIA

NAME: MUHAMMAD FIRDAUS BIN EKHSAN

NO. MATRIC: 1132637
SUPERVISED BY: DR. AZRUL BIN MOHD YUNUS

1. INTRODUCTION
1.1 Background of Study
Malaysia as a developing country has obtained benefits from the
development of the housing industry. The Malaysian housing development
has continued to fight in spite of various constructions and restrictions.
The housing industry has been using conventional development methods
for many years. Starting year 1996, Malaysian housing loan increased
steadily in an upward trend. This indicates that the demand of real estate
have been increase and it implies that purchasing power of Malaysian had
increase.
Furthermore, the increase suggest that increased in population demands
more housing. Despite going through three financial crisis, the Malaysian
house price remain strong. The prices of house have seen an increases of
20.3% in 1991 and later rose 14.4% in 1995 and during the Asian financial
crisis In between 1997 and 1999, Kuala Lumpurs house price remain
robust.
Transportation is one of the main culprits the development of housing
industry in our country. A house located near public transit will tend to be
sold at a premium. This is due to the convenience that public
transportation enables people to travel from one part to the other in a
relatively short time.
The development of transport infrastructure has economic effects enjoyed
by economic agents located at its proximity, measured in particular by its
effect on housing prices. The increase in house prices have boosted the

property sector and also attracted many of new development for

residential building.
This paper examines this relationship in order to capture the effect of
transportation improvements in Malaysia and to test whether its location
makes any marginal difference to the results.

1.2 Problem Statements

According to Baldwin (2001) and Baldwin, Forslid, Martin, Ottaviano, and
Robert-Nicoud (2003), transportation improvements lead to higher local
real house prices in the peripheries affected due to the increased demand
which follows in the wake of lower transportation costs, and the improved
access they offer to the labour market and the markets for goods and
services.
Do transport improvements between urban and rural areas and the capital
area affect the local price of houses? This could also be phrased as
follows: Do district areas benefit from better access to relatively large
urban areas due to an improved transportation system? Thus, I try to
answer another research question by doing this research titled, The
Relationship of Transportation and House Pricing in Malaysia.

1.3 Objectives
1.To find out the relationship of transportation and house pricing in
Malaysia.
2. To find out the difference between the impacts of transportation
improvements on local housing prices in the urban and rural areas of
Malaysia.

1.4 Research Questions

Doestransportation has relationship between urban area and the rural
areas?
Is there a marginal difference between the impact of transportation
improvements on local housing prices in the urban and rural areas of
Malaysia.

1.5 Scope of Study

The scope of study on this research is focusing on the relationship of
transportation on house pricing in Malaysia and see how it affects the
economic in Malaysia. The period of study is five years which aretaken
from 2010 to 2015. This study was conducted at Kuala Lumpur and Perlis.

2. LITERATURE REVIEW
According to Mike Wrigley and Peter Wyatt (2001), from the articles
Transport Policy and Property Values, Stated that most of
the literature in this area relates to the assessment of the impact of
a single piece of infrastructure (often a rapid transit system) on
property values.
According to Yago, G. (1983). The Sociology of Transportation, the
importance

of

transportation

cannot

be

over-emphasized.

Transportation centrally affects the relationship between physical

space and society, and organization of human activity in urban and
regional space.
According to Fujita and Thisse (2002), McCann (Fujita (1989), Urban
Economic Theory: Land Use and City Size, the price of land and real
estate is highest in city centres and decreases with every unit of
distance from city centres. Thus, when some areas are pulled closer
to the city centre through an improvement in transportation, the
land values in these areas increases.
According to Baldwin (2001), Core-Periphery Model with ForwardLooking Expectations, transportation improvements lead to higher
local real house prices in the peripheries (rural)

In

this

article,

the

relationship

between

transportation

improvements and real house prices will be investigated by

comparing with two places which are Kuala Lumpur and Perlis.

2.1 Kuala Lumpur

Kuala Lumpur is an advanced state in Malaysia. There are a variety of
construction and facilities that were built in the capital. Among the
facilities that were available is public transport. Public transport in Kuala
Lumpur covers a wide range of transportation such as bus, rail, and taxi.
Malaysian government has spent millions to improve the quality and
availability of public transport in Kuala Lumpur, including building new LRT
lines. So, transport facilities serving the prices of homes increased in an
area. According to Global Property Guide website, Kuala Lumpur has the
most expensive housing in Malaysia, with an average price of MYR
718,755 (US$167,035) in Q3 2015. However, house prices depend on the
distance between residential areas with the city. The closer to residential
areas with transport facilities in the city, the more expensive the price of a
house.

2.2 Perlis
Perlis is the smallest state in Malaysia. This state can be categorized as
one of the less developed than in Kuala Lumpur. According to Global
Property website, Perlis had the cheapest, at an average house price of

MYR156, 324 (US $ 36.329). This is due to the lack of development and
transport facilities.

3. DATA AND METHODOLOGY

3.1 Data
The study is carried out for Malaysia by using data over the period January
2010 to December 2015. The sample data will be taken using DataStream.
The data is collected at Kuala Lumpur and Perlis. The period of study is 6
years to complete the investigation.

variable
Independe
nt
(x)

Proxy
Public

Average

definition

public any form of

transportat transport in an area transportation that
charge set fares,
ion
run fixed routes,
and are available to
the public such as
buses, taxi, and
trains

House size Average

(HSIZ)

houses

size

of How big is your

sold,

in house? Is it big

square meters

enough? This post

takes a look at
average house sizes
around the world
and asks how much
space is enough.

Population

Municipality

(POPU)

population, in

the number or body

absolute terms

of inhabitants in a
place belonging to a
specific

social,

cultural,
socioeconomic,
ethnic,

or

racial

subgroup
House age

Average

(HAGE)

houses sold, in

home,

absolute terms

home

age

of the

age

of

the

whether
is

newly

constructed or has
been,
modern
dependent

House

Real

price

(y)

price

meter

(HPRI)

Malaysia

whether
or

traditional
per The average price

squared, of a home in the

area

3.2 Methodology
In this study, we will use panel data as our methodology. The model that
we use is empirical model. This model is based on Von Thunens theory.
This model has been frequently used in various in house price research.
The most frequent version of the model is as following,
ln hit =a+r it 1+ cx ' it + it
Where,
x 'it =Vector of relevant additional explanatory variables
c=Vector of coefficients

 =Error term
The equation describes a non-linear relationship of the semi-logarithmic
type. Selected additional explanatory variables from former studies
include several local demographic factors, such as population or a change
in it.

However, standard panel data models, such as fixed- and random effect
models, generally return more efficient estimators than pooled ordinary
least squre (POLS) models. Furthermore, since the relationship of local
house prices and transportation improvements is the present focalpoint,
the fixed effect model is more appropriate where the variable coefficient
returns a within individual variation or the time variation and returns the
between individual variation into the individual constant term. Thus, it is
reasonable to apply the following fixed effect empirical model,
ln hit =a+r it 1+ x 'it 2+ d ' it 3 + it
Where,
h=house price

r=distance the capitalarea

x ' =explanatory variables
d ' =dummy variables
=relevant residuals

a=individual constant term

Total household income, age of the buildings, and population are other
explanatory variables. There is a dummy variables, to capture the effect of
a transportation improvement financed by a road toll.

Another version of the model could be more appropriate to the data

sample than the semi-logarithm version. It is a model of quadratic
distance version, which has been implemented at least once before by
McDonald and Osuji (1995). The model is as follows:

ln hit =ai +r it 1+ r it 2 + x ' it 3 +d ' it 4 + it

The model is identical to the semi-logarithm model except for an

additional variable for quadratic distance, r it . The reason for its
relevance is the suspicion of possible different marginal impact with
respect to location.

4. Expected result
From this study, we can expect that transportation really affect the house
pricing in Malaysia. We can estimate that Kuala Lumpur as an urban area
has good transportation than Perlis. This cause the house pricing in Kuala
Lumpur is higher than Perlis. Besides, Kuala Lumpur has higher population
than Perlis, therefore have a higher house price in square meters. House
size also plays a role in determining house prices in an area. Most houses
in Kuala Lumpur have a considerable size and luxury than in Perlis. This
will cause the rise in house prices. In addition, age is a factor house rising
house prices. Most houses in Kuala Lumpur were modern and have a

complete system or facility. So it will increase the price of a home. But in

Perlis, the age of the house is old and outdated cause low home prices.
Besides that, the small population and far from capital area in Perlis also can be
reasons why the price of house was low.

5. References
Alonso, W. (1964). Location and Land Use. Cambridge: Harvard University
Press.

Archer*, W. R., Gatzlaff, D. H., & Ling*, D. C. (1996). Measuring the

Importance of Location in House Price Appreciation. Journal of Urban
Economics, 40(3), 334-353.
Baldwin,

R.

E.

(2001).

Core-periphery

model

with

forward-looking

expectations. Regional Science and Urban Economics, 31(1), 21-49.

Baldwin, R. E., Forslid, R., Martin, P., Ottaviano, G., & Robert-Nicoud, F.
(2003). Economic Geography and Public Policy. Princeton: Princeton
University Press.
Hussin, A. A. (1994). Housing finance and the Malaysian economy.
Housing Finance International.
Goodman, A. C., & Thibodeau, T. G. (1998). Housing market segmentation.
Journal of Housing Economics, 7, 121-143.
Hashim, Z. A. (2010). House price and affordability in Malaysia.
Akademika, 78(Jan-April), 37-46.
Henneberry, J. (1998) Transport investment and house prices, Journal of
Property Valuation and Investment, 16, 2, 144-158.
Hoesli, M., Thion, B. and Watkins, C. (1997) A hedonic investigation of the
rental values of apartments in central Bordeaux, Journal of Property
Research, 14, 15-26.
Hurd, R. (1903) Principles of city land values

Malaysia. Ministry of Finance, Valuation and Property Service Department.

(2006). Property overhang.Kuala Lumpur: Government Printer.

Malaysia. Ministry of Finance, Valuation and Property Service Department.

(2007). Property marketreport. Kuala Lumpur: Government Printer