JUDGEMENTAL FORECASTING IN THE REAL ESTATE SECTOR

Abstract

As Singapore is fast becoming a major financial and investment center, forecasts on future business climate would be of significant interest to institutional as well as individual investors, in appraising the performance and potential of various industries. In recent years, the surge of real estate activities has resulted in a demand for reliable and accurate forecasts for the industry. However, as most forecasts in the real estate industry are based on "the feel for the market", there is need to evaluate such forecasting methodology objectively. One source of forecasts which proxy this "feel for the market" is the Survey of Business Expectations. It is a collection of forecast for the performance of crucial activities in the economy including the real estate sector. The survey attempts to obtain the judgments and impressions of businessmen and managing executives of their recent experience and their expectations of future businesses conditions. The survey form the basis of decision-making by government, business and private households; they can help shape public opinions; and they can have an important bearing on market confidence. However, there is a lack of an objective approach to the evaluation of this forecasting method to ascertain reliability and accuracy. Such an evaluation is necessary as it would also provide a better understanding of the nature of the forecasts. In this study, regression analysis is utilised to evaluate the forecast provided by the Survey of Business Expectations for the real estate sector. The results from using both / and F test statistics, reject the null hypothesis that the respondents to the Survey of Business Expectations correctly forecast the employment, gross receipts and average selling price in the real estate sector. A significant finding is that the employment of judgment in the forecasting process produces systematic bias. It is suggested that the use of heuristic accounts for this biasness in judgment. Other significant findings include the shortage of labor for the real estate sector, conservatism in the projection of the revenue position and pricing strategy of real estate firms and the ability of the firms especially developers in managing the inherent risk relating to the pricing of their products and services.