INDUSTRIAL PROPERTY PRICE DYNAMICS IN SINGAPORE

Abstract

In recent years, skyrocketing prices and increasing speculative activities in the Singapore industrial property market have generated serious concerns. This dissertation aims to understand the dynamics of industrial property prices, as well as the long-run and short-run impacts of demand and supply fundamental determinants, particularly the area sold under the government land sales programme on industrial property prices. The empirical strategy uses the traditional stock-flow model and the investment accelerator model to estimate a reduced form error correction model and a unrestricted vector autoregression model. These methodologies could explain price movements well: the gross domestic product and the lagged rental rate from the demand side, as well as the tender price and cumulative land sales under the government land sale programme from the supply-side were statistically significant long-run determinants of industrial property prices in Singapore. They jointly explained 66.8% of the price movements for the period 1993:2 to 2014:3. In the short-run, previous industrial price changes, supply side factors and policy changes were found to be more significant in the adjustment process of price deviations from their long-run equilibrium values. The results confirmed that the industrial land sale programme has its intended damping effect on price level and thus can be used as an effective policy tool for price stabilization. Other measures to curb property prices should also be considered in view of the land resource constraint in Singapore. However, a unified policy solution is needed, as the surge in industrial property prices is found to be caused by the series of cooling measures targeted at the residential sector in our paper.