SINGAPORE HOUSING CYCLE : INDICATIONS FROM BREAKPOINT ANALYSIS

Abstract

Increasing property prices was a major concern among Singaporeans during the General Election held in 2011. As prices rise so quickly, affordability becomes a critical issue. In order to ensure a sustainable and stable housing market, a detailed understanding of the key drivers behind the increasing price growth, particularly, studying the key drivers fuelling the housing price growth at the beginning of the boom is especially useful as the highest price appreciation usually takes place at the start of a housing boom (Ferreira & Gyourko, 2011). This paper therefore aims to study Singapore’s housing cycle from the perspective of breakpoint analysis and examine the role of foreign investment in Singapore’s housing market. The methodology of this paper involves firstly, the construction of hedonic house price indexes using micro transactions obtained from Urban Redevelopment Authority’s (URA) Real Estate Information System (REALIS). Secondly. Breakpoint analysis is performed to estimate the timing and magnitude of the beginning of the boom. Lastly, the possible deivers of the house price growth are studied and discussed to test the research hypothesis of this paper. The analysis offers four important findings. First, from the hedonic price index, it can be observed that the housing cycle of Singapore from 1996 to 2000 is rather short. This may be because of the effective government measures that were implemented to boost and dampen demand during the downturns and upturns, respectively. Second, the results of the breakpoint analysis show that while the property cycle is short as compared to other international markets such as the U.S and U.K., Singapore’s housing market can still be broadly categorized into early boomers and late boomers. Early boomers cluster in the central region while late boomers are usually at the suburban areas. Third, the housing price appreciation is estimated to be the highest at around the breakpoint although early boomers and late boomers do not differentiate much in their magnitudes. Lastly, this paper concludes that foreign buyers is a key driver of house price growth in Singapore, in addition to income growth and supply factors, and this has policy implications.