Predicting rental yield for the benchmark pricing of equity home financing

Islamic financial institutions offer home financing products that are fully compliant with Shariah. A problem lies in the fact that the equity home financing product lacks a reference, or price benchmark, which is independent of the interest rate. Many have suggested to price this product based on r...

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Main Authors:	Redzuan, Nur Harena, Kassim, Salina, Mohd Yusof, Rosylin, Othman, Anwar Hasan Abdullah
Format:	Conference or Workshop Item
Language:	English
Published:	2019
Subjects:	HG3368 Islamic Banking and Finance
Online Access:	http://irep.iium.edu.my/77104/ http://irep.iium.edu.my/77104/ http://irep.iium.edu.my/77104/1/77104%20-%20Predicting%20rental%20yield%20for%20the%20benchmark%20pricing%20of%20equity%20home%20financing%20-with%20evidence.pdf

id	iium-77104
recordtype	eprints
spelling	iium-771042019-12-17T04:55:32Z http://irep.iium.edu.my/77104/ Predicting rental yield for the benchmark pricing of equity home financing Redzuan, Nur Harena Kassim, Salina Mohd Yusof, Rosylin Othman, Anwar Hasan Abdullah HG3368 Islamic Banking and Finance Islamic financial institutions offer home financing products that are fully compliant with Shariah. A problem lies in the fact that the equity home financing product lacks a reference, or price benchmark, which is independent of the interest rate. Many have suggested to price this product based on rental rate, as this rate is indicative of the real value of the property being occupied. The main objective of this study is to assess the viability of rental yield as a pricing reference for equity home financing, as an alternative to reliance on the market interest rate. The study examines the rental yield forecasting model in the context of the Malaysia residential market, in the capital city of Malaysia – Kuala Lumpur. The forecasting technique of the autoregressive integrated moving average (ARIMA) model is adopted to assess the predictability of the rental yield. The data used are from 1988 until 2015 to examine the forecasting model for the next period of three years. Diagnostic testing is also conducted on the model. This model is evaluated on five performance metrics based on the ARIMA model. The findings show the in-sample prediction is almost similar to the actual data. This paper reveals the experimental results which demonstrate that the ARIMA model can closely forecast the housing market. In conclusion, the rental yield is proposed as being a suitable alternative as the reference rate to the benchmark the price of Islamic home financing products, based on the equity model. Rental yield is regarded as a rate that is fair to both the customer and Islamic financial institutions, as it measures the actual rate of return to both parties in the equity contract. The proposed rental yield is more stable, having fewer fluctuations and yet comparable to its counterpart. 2019-12-04 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/77104/1/77104%20-%20Predicting%20rental%20yield%20for%20the%20benchmark%20pricing%20of%20equity%20home%20financing%20-with%20evidence.pdf Redzuan, Nur Harena and Kassim, Salina and Mohd Yusof, Rosylin and Othman, Anwar Hasan Abdullah (2019) Predicting rental yield for the benchmark pricing of equity home financing. In: The 7th ASEAN Universities International Conference on Islamic Finance (AICIF 2019), Gontor, Indonesia. (Unpublished) http://ei.unida.gontor.ac.id/aicif-2019/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG3368 Islamic Banking and Finance
spellingShingle	HG3368 Islamic Banking and Finance Redzuan, Nur Harena Kassim, Salina Mohd Yusof, Rosylin Othman, Anwar Hasan Abdullah Predicting rental yield for the benchmark pricing of equity home financing
description	Islamic financial institutions offer home financing products that are fully compliant with Shariah. A problem lies in the fact that the equity home financing product lacks a reference, or price benchmark, which is independent of the interest rate. Many have suggested to price this product based on rental rate, as this rate is indicative of the real value of the property being occupied. The main objective of this study is to assess the viability of rental yield as a pricing reference for equity home financing, as an alternative to reliance on the market interest rate. The study examines the rental yield forecasting model in the context of the Malaysia residential market, in the capital city of Malaysia – Kuala Lumpur. The forecasting technique of the autoregressive integrated moving average (ARIMA) model is adopted to assess the predictability of the rental yield. The data used are from 1988 until 2015 to examine the forecasting model for the next period of three years. Diagnostic testing is also conducted on the model. This model is evaluated on five performance metrics based on the ARIMA model. The findings show the in-sample prediction is almost similar to the actual data. This paper reveals the experimental results which demonstrate that the ARIMA model can closely forecast the housing market. In conclusion, the rental yield is proposed as being a suitable alternative as the reference rate to the benchmark the price of Islamic home financing products, based on the equity model. Rental yield is regarded as a rate that is fair to both the customer and Islamic financial institutions, as it measures the actual rate of return to both parties in the equity contract. The proposed rental yield is more stable, having fewer fluctuations and yet comparable to its counterpart.
format	Conference or Workshop Item
author	Redzuan, Nur Harena Kassim, Salina Mohd Yusof, Rosylin Othman, Anwar Hasan Abdullah
author_facet	Redzuan, Nur Harena Kassim, Salina Mohd Yusof, Rosylin Othman, Anwar Hasan Abdullah
author_sort	Redzuan, Nur Harena
title	Predicting rental yield for the benchmark pricing of equity home financing
title_short	Predicting rental yield for the benchmark pricing of equity home financing
title_full	Predicting rental yield for the benchmark pricing of equity home financing
title_fullStr	Predicting rental yield for the benchmark pricing of equity home financing
title_full_unstemmed	Predicting rental yield for the benchmark pricing of equity home financing
title_sort	predicting rental yield for the benchmark pricing of equity home financing
publishDate	2019
url	http://irep.iium.edu.my/77104/ http://irep.iium.edu.my/77104/ http://irep.iium.edu.my/77104/1/77104%20-%20Predicting%20rental%20yield%20for%20the%20benchmark%20pricing%20of%20equity%20home%20financing%20-with%20evidence.pdf
first_indexed	2023-09-18T21:48:48Z
last_indexed	2023-09-18T21:48:48Z
_version_	1777413630423203840

Predicting rental yield for the benchmark pricing of equity home financing

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