Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/221757
Title: CONSTANT-QUALITY PRICE INDEX AND MARKET POWER OF DEVELOPERS IN THE NEW SALE CONDOMINIUM MARKET
Authors: GO CHOON KOAY
Keywords: Real Estate
Constant-quality price index
Market power of developers
New sale condominium
Issue Date: 4-Jan-2010
Citation: GO CHOON KOAY (2010-01-04T07:50:02Z). CONSTANT-QUALITY PRICE INDEX AND MARKET POWER OF DEVELOPERS IN THE NEW SALE CONDOMINIUM MARKET. ScholarBank@NUS Repository.
Abstract: In view of the sharp rises and drops of new condominium prices in the previous property market cycle, this study aims to examine the impact of various macroeconomic factors on the new condominium prices, and at the same time, to test whether developers have market power in pricing their developments through a constant-quality condominium new sale price index controlled for market power factor over a sample period of 14 years. The hedonic price method with varying parameters is adopted in the construction of the constant-quality indices. GDP growth rate, stock market return, inflation, 15-year home loan rate and three-month T-bill rate are used in the tests for their impact on the price index through a multivariate regression analysis. In the tests for market power, a binary variable is added in the price model to control for the transactions of new condominium units developed by the top-five developers in the market. The results show that inflation is positively related to new condominium prices, while home loan rate and GDP growth rate are inversely related to new condominium prices at the aggregate level. In the Core Central Region, stock market return is positively related to price. In the tests for the Rest of Central Region and the West Region, inflation and home loan rate both were observed to be significantly explained the price variations while inflation is the only variable that was significant in the West Region’s condominium price changes. An inverse relationship of stock market return with housing price is observed in the East Region. On average, new condominium units built by the top-five developers command a premium of 2.18 percent. Stock market return was found to be inversely related to the developer’s premiums signifying that developers are less competitive in exercising market power in the booming stock markets. Lastly, the concentration ratio of top-five developers was found to be insignificant in explaining the fluctuation of the developer’s premiums, rejecting the ‘market power’ hypothesis for the price premiums. Further tests could be done in the future to explain the developers’ reputation contributes to the price premium in the new condominium sales.
URI: https://scholarbank.nus.edu.sg/handle/10635/221757
Appears in Collections:Bachelor's Theses

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