IMPACT OF EXTERNAL AND INTERNAL ECONOMIC POLICY UNCERTAINTY ON REAL ESTATE RETURNS: EVIDENCE FROM SINGAPORE

Abstract

This paper seeks to investigate the impact of external and internal economic policy uncertainty on real estate returns in Singapore from 2003 to 2019, with the latter being evaluated from both real asset (“housing market”) and financial asset perspectives (“stock market”). In representing economic policy uncertainty, external and internal uncertainties are accounted for by the Singapore Economic Policy Uncertainty Index and Singapore Housing Uncertainty Index respectively, with the latter being a newly constructed index for the purpose of this investigation. Using a Vector Autoregression (“VAR”) analysis, the results suggest that external uncertainties have significant negative impact on stock market performance and a weak evidence of negative impact on housing market performance while internal uncertainties do not have significant impact on both stock and housing markets. Moreover, there exists a uni-directional causality from stock market to housing market performance. This study provides important implications for policy-making and portfolio diversification strategies.