PRICE DISCOVERY BETWEEN EXECUTIVE CONDOMINIUM AND REAL ESTATE SECONDARY MARKETS IN SINGAPORE

Abstract

This paper investigates the long-run and short-run relationships between the three housing submarkets in Singapore: Executive Condominium, HDB Public Housing and Private Condominium. The motivation behind this study is to provide insights on the price dynamics of the executive condominium market, which is of increasing interest to researchers and potential home buyers. The Johansen cointegration test was conducted to examine the long-run equilibrium relationship between the three housing submarkets. The results of the multivariate cointegration test revealed that there is at most one cointegrating relationship among the variables. More importantly, the existence of a long-run equilibrium relationship reinforced the view that price discovery occurs between the respective housing submarkets. The Granger causality test was then carried out to determine the short-run causal relationship between the three housing submarkets. In addition, given the evidence of cointegration, the Vector Error Correction model could be applied to the test procedure. The results of the Vector Error Correction-Granger causality tests revealed a single short-run causal relationship from the executive condominium market to the HDB public housing market. In essence, this implied that past price movements of the executive condominium market provide useful information of the current price movements in the HDB public housing market.