IMPACT OF THE QUALIFYING CERTIFICATE ON DEVELOPERS' PRICING BEHAVIOUR AND MARKET

Abstract

Over the last decade, the Singapore economy has experienced robust growth in the private residential housing sector. With improved market sentiments and a low interest rate environment, local private housing prices escalated beyond levels considered to be sustainable. Several contentious issues on housing affordability and speculation plagued the nation, which warranted immediate government intervention. The study endeavours to examine the effectiveness of the Qualifying Certificate (QC) on the pricing behaviour of developers and the private residential market. By using a hedonic pricing model and transacted data obtained from Real Estate Information System (REALIS), the effect of the QC on developers pricing behavior, while controlling for hedonic attributes, spatial and time fixed effects, is examined. Further graphical analysis on transaction volume is examined as well, to understand the effect of changes in pricing behaviour on transaction volume in the market. Findings revealed that the QC policy has a binding effect on developers’ price setting behavior, wherein prices of the affected properties (developments affected by QC) transacted at lower prices than unaffected properties, in the same observed time frame. Results showed that prices declined further as the QC deadline loomed, with transactions made at a 6.2% price discount a year before the deadline, and 10.3% price discount a quarter before the deadline. Transaction volume analysis reflected an inverse relationship between prices and volume, which further proves that the changes in developers’ pricing behavior has an effect on the private residential market. Results of the robustness test serves as a testament to the abovementioned findings. Overall, this study provides further evidence and insight on the effectiveness of anti-speculation measures on the pricing behavior of new non-landed private property launches by developers, and the private residential market in entirety.