PRICE DISCOVERY AND SMOOTHING IN THE SINGAPORE COMMERCIAL AND INDUSTRIAL PROPERTY MARKETS

Abstract

The commercial and industrial property markets are usually affected by the global, regional, and domestic economy. As a result both markets tend to be inter-related and move in the same trend. However, the two markets may be differentiated by the level of government involvement. This dissertation addresses the issue of price discovery or relation between these two sub-markets of the Singapore real estate market. Besides the graphical comparison of the trends of both markets, risk-return analysis, temporal cross-correlation analysis, and Granger causality test are used to determine the likely relationship between the markets. The issue of smoothing in real estate price series is also addressed by comparing the results of the above tests based on both the original smoothed and perfectly unsmoothed data series. This study finds evidence that price discovery occurs in the commercial property market. In other words, price information revealed in the commercial property market may be used to make inferences on the prices of the industrial property market. It is also found that smoothing in the Urban Redevelopment Authority's commercial and industrial property price indices have no significant impact on this study. The findings of this study provide useful information to the developers, investors, businesses, and policy makers in the industrial property market. The relationship between the markets will aid them in the pricing of industrial properties. Businesses may use this understanding of the markets to make better real estate management decisions.