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Higher prices as income grows rapidly

KUALA LUMPUR (April 18): Middle-income economies see higher property prices due to the rapid growth of these two income segments in the urban population according to Dr Yeah Kim Leng, chief economist of RAM Holdings.

During his talk entitled "The Paradox of Middle Income Economy and High Propery Prices" at the 22nd National Real Estate Convention in Kuala Lumpur on Wednesday, Yeah said the paradox is that house prices relative to income exhibit an inverse relationship with the country's income status, which is high in middle income countries but show even higher in low income countries.

This is due to the rapid growth in middle income households that raises demand and gives less flexibility in the housing supply, which in turn causes an upward pressure on house prices.

Yeah added that together with easy credit and low interest rates, this condition will play a role in fueling the systemic condition that creates a property bubble.

However, Yeah said the property bubble is not something that Malaysians should be concerned with just yet.

According to him, several ways that countries can mitigate high house prices include reducing land and housing construction costs and bottlenecks with more subsidies or credit finance; programmes by non-profit developers and municipal corporations to supply affordable rental housing; the use of innovative approaches to urban land development — for example, encouraging private land owners to pool together for larger scale housing projects; as well as public sector provision of affordable housing.

Yeah said countries should adopt new urbanism involving increasing density near transport nodes such as bus lines and subway stations as well as create more compact cities through establishing am efficient relationship between housing, transportation and the labour market.

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