DO NEARBY RETAIL OWNERS ALWAYS BENEFIT FROM NEW MRT DEVELOPMENTS? A RENTAL PERSPECTIVE

Abstract

Commonly regarded as the backbone of Singapore’s public transport system, the Mass Rapid Transit (MRT) has undergone extensive changes in recent years. These developments have not only enhanced overall accessibility, but also rail network connectivity with new MRT interchanges. The general perception is that new MRT developments positively impacts nearby retail property values. Yet, there are rising concerns about greater competition between retail areas. This raises the question of whether retail owners actually always benefit from new MRT developments nearby. Existing studies have only looked into the direct rail impact, without considering possible complementary effects due to improved rail connectivity and substitution effects between retail areas due to greater competition. This, coupled with the literature gap concerning the rail impact on retail rents in Singapore, forms the impetus of this research. Focusing on the Circle Line (CCL), panel data involving 1920 subzone median rental transactions from Year 2004 to 2013 were collected. Using a Difference-in-Difference (DID) estimator, results indicate at least 8.1% premium for retail areas that benefited from the improved MRT connectivity, underscoring the presence of complementary effects. The premium increases substantially to 29.8% for retail areas accessible to new MRT interchanges. Without the complementary effects, however, rental declines of at least 10.6% were observed, indicative of substitution effects between retail areas. While the results affirm that the Government’s initiative of enhancing transport connectivity has generated positive economic benefits, retail owners’ concerns about greater retail competition are valid too, with negative rental impacts observed in less established retail areas. Going forward, transport planners should not only consider the physical changes, but also the expected economic repercussions associated with future transport developments.