HOUSING MARKET DYNAMICS : AN EMPIRICAL STUDY OF SINGAPORE

Abstract

This study looks into the influence of underlying fundamentals and government policies on the dynamics of private housing price in Singapore using quarterly data from the first quarter of 1990 to the first quarter of 2009. Cointegration analysis is applied to an empirical model which shows that the long-run movement of real private housing price is explained by the real public resale housing price, the user cost of capital and the overall private housing stock during the investigation period. An error-correction model is estimated to capture the changes in real private housing price to account for the short-run deviations from the long-run equilibrium relationship. The volatility of real private house price changes appears to be significantly influenced by the changes in total private housing stock and the implementation of government policies. The error correction term shows that 3.3 per cent of the previous discrepancies between actual and desired long-run private housing prices are corrected in each quarter. This is a slow response rate compared to the range of 10 to 13 per cent reported for the Singapore housing market. Another important finding is the significant impact of the regulatory policies on private housing price such as the anti-speculation measures, Government Land Sales programme, removal of Deferred Payment Scheme and deregulatory policies such as public resale flat credit policy, Central Provident Fund liberalization policy and other deregulatory measures for the public and private housing market. Given the tendency of the government to intervene in the property market to smooth out undesirable volatility from time to time, shocks from the implementation of such policies may have a lasting disequilibrating effect on private housing price. Thus, timing and coordination are important for any policy making.