Estimating the apartment foreclosure discount in Kuala Lumpur

This paper examines the price differential between properties traded in the auction market and private negotiated market.With the exception of anecdotal information which suggests that auctioned or foreclosed properties in Malaysia tend to be sold at a deep discount, no study has thus far attempted to quantify this foreclosure discount.We uncover this question by examining listing price of apartment properties in Kuala Lumpur during 2009-2014.For each of the auctioned apartment in our sample, we match it with comparable non-auctioned apartment located in the same building block.This matching strategy essential net out the locational and neighbourhood characteristics of the properties, thus, allowing us to attribute the price differential to the “stigma effect” associated with auctioned or foreclosed properties.We document that auctioned apartments are listed at a discount of 34% as compared to apartments listed in the private negotiated market