THE DYNAMICS OF SINGAPORE PRIVATE RESIDENTIAL PROPERTY PRICES: SOME EMPIRICAL EVIDENCE

Abstract

This study seeks to explore the dynamics of Singapore's private residential property prices. One of the reasons warranting investigation is that house price dynamics provides an insight into the operations of the housing market. The residential property sector is an important asset to the economy, with contributions to GDP and thus plays a crucial role in affecting investment decisions. This study utilises URA quarterly price data from 1975Q1 to 1998Q3 to explore the residential price cyclical component, develop an optimal forecasting model via Box- Jenkins methodology, and to investigate the nature and magnitude of the impact of the May 15th 1996 anti-speculation curbs on residential property prices. Research findings have shown that for the overall residential market, a long-run of 11.75 years, middle-run of 5.88 years and a short-run of 2.61 years have been identified. The landed and non-landed property types demonstrate similar price-cyclical behaviour, with the exception of the condominium sub-market exhibiting a middle-run of 2.42 years and a short-run of 1.45 years. Ex post forecasts generated based on the adequate ARIMA (1,1,0) model (1 — (j)Z?)Vz, = r, are rigourously tested for accuracy. Results are significant, indicating low root mean square percentage error. Results have also shown that the anti-speculation curbs have changed the fundamental structure of the private residential market, with a structural drop measuring 3.5% per quarter for the overall residential property price level, and also a long run reduction of 16.7% in the mean price level. However, changes in mean price levels were not immediate. The dynamics of the local private residential property prices are effectively illustrated by the qualitative and quantitative findings. The development of such findings will aid institutional investors and policy-makers in comprehending the dynamics underlying such price movements, thus making sound decisions and policies that will inevitably have extensive influences on the residential property market as well as on the economy.