Global Liquidity, Capital Inflows and House Prices in ASEAN Economies

Quantitative Easing (QE) policies, adopted by the advanced economies since 2009, have led to abundant global liquidity. In the same period, the ASEAN-5 economies (Indonesia, Malaysia, the Philippines, Singapore and Thailand) have recorded strong capital inflows, particularly portfolio inflows. Asset prices, in particular house prices in these economies, have also experienced excess buoyancy. This paper studies the relationship between global liquidity, house prices and capital flows. Empirically, capital inflows have had a positive effect on residential house prices in Indonesia, Malaysia, the Philippines and Singapore. After accounting for domestic demand (using real GDP growth as a proxy), capital inflows have still had a positive impact in Indonesia and Singapore. The authorities of these economies have implemented similar macroprudential measures to safeguard financial stability and reduce speculative activity. The effectiveness of the measures has been seen mainly through a reduction in housing transactions.