Sentiments in the housing market and the effectiveness of government interventions

This paper examines the factors that drive the recent growth of house prices in Malaysia. By constructing a housing market sentiment index, we find contemporaneous sentiment to have a strong influence on future housing market returns especially in the short term. Government-introduced cooling measures were ineffective in dam-pening prices and market sentiment. We also find property developer behaviour to drive sentiments and prices. The study contributes to literature by providing an easily generalizable method of constructing a housing market sentiment index in other countries besides giving clear indication of the drivers of house prices and sentiment for more effective government intervention.