SHOULD THE GOVERNMENT INTERVENE TO CURB SPECULATION IN THE PRIVATE HOUSING MARKET

Abstract

Speculation is alleged to worsen the housing property market during times of property boom by increasing the already sky rocketing prices. This has negative implications as homeownership is out of reach to many young families while it also increases business cost, making Singapore a less attractive place for investments. In addition, the already over-heated market will take a further surge and this will make magnify the devastating effects that the inevitable fall is going to bring. The speculative market perspective is that price movements are driven by irrational price expectations rather than market fundamentals. This dissertation attempts to explain the reasons for the price movements in Singapore private residential property market. First, a hedonic regression is run to investigate the effect of speculative activities on price movements. The empirical study covers a sample period of 24 months between Jan 1995 to Dec 1997 with over 6700 condominium transactionss in central region as the sample. The results indicate that housing prices change is positively and significantly related to speculation. Next, a count of speculative activities is done over the a period of 24 months to examine the impact of government intervention on property speculation. The results shows that the anti speculation policies are highly successful with speculation hitting near rock bottom after one month of implementation of the policies. The findings suggest that housing price movements may be decomposed into two components – the fundamental component (which is divendriven by size, floor level, distance to Central Business District, Property Price Index and tenure) as well as the speculative component.