REAL ESTATE LIFE CYCLE COMPOSITE INDEX

Abstract

Business cycles and property cycles have been shown by various studies to be directly related. Historical reviews have shown that studies concerning correlation between housing cycles and economic fundamentals have been done using VAR analysis (Kholdy, 1996). This research further confirms the existence of a relationship between the property and economic life cycle and proceeds to explore their correlation levels using five countries, namely Japan, Australia, United Kingdom, Singapore and The Philippines. Empirical studies, using weighted arithmetic mean and composite index construction methods, have been used to derive the correlation coefficients or lead-lag relationships between property price changes and economic fundamentals. It was found that high correlation exists between movement of a country's economy and its property market. It is then possible to use the derived correlations to accurately predict medium term property market behaviour from the economic fundamentals. Graphs of property life cycle composite index are plotted for each country. These graphs can be used to project the next stage of property market life cycle by analysing the trends from past period