TIME SERIES ANALYSIS AND DYNAMIC MODELLING OF THE PROPERTY DEVELOPMENT CYCLES IN SINGAPORE

Abstract

Development activity does not necessarily show a regular growth trend in line with economic expansion. Building activity proceeds through an alternating sequence of booms and slumps, with more pronounced variations than in any other forms of capital formation. Cycles of different periodicities have been identified in other countries, from short cycles of three to four years to long swings of twenty years. Cycles of different types of development sometimes reinforce and sometimes counteract each other as development capital switches between the sectors. The development cycle has been a cause of instability in the property markets which can cause major problems to private developers, financiers and public policy makers. Hence, an understanding of the incidence and causes of development cycles is essential to control the volatile property market mechanism in Singapore since 1960s. The dissertation examines the existence and causes of the property development cycles in Singapore for the period 1964 to 1987. The quarterly analysis covered three major sectors - private residential, private commercial and private industrial. GDP is used as a proxy to represent the level of user demand activity. Supplysided financing/building costs and mortgage rates are represented by prime rates. Turning point analysis supplemented by spectral analysis is used to identify the cycles in each sector, and to measure their severity, distinguishing short 4-5 years ?demand' cycles associated with the business cycles from major 'supply' cycles associated with the production lags inherent with the property development process itself. The exogenous influence on the development cycles of variations in national economic factors is investigated through a modelling framework incorporating the Box-Jenkins approach and Granger's causality test. The effectiveness of the public construction as a countercyclical device to the national economy is examined in Chapter six followed by an evaluation of the sectoral stabilisation policy. A knowledge of the various statistical theories and concepts is assumed in the discussion throughout the dissertation.