HOUSING PRICE PREMIUM OF CREDIT CONSTRAINED HDB UPGRADERS FOR EXECUTIVE CONDOMINIUMS

Abstract

Singapore’s housing market is characterised by the co-existence of highly inter-related public and private housing markets. It is postulated that there is a housing hierarchical structure in Singapore’s housing markets. Despite their aspiration to upgrade to private properties, HDB upgraders are often bounded by credit constraints thus limiting their upward mobility options to ECs or apartments at the first step. Thus, this research seeks to explore whether there is a price premium or price discount attached to ECs by HDB upgraders relative to other buyers. It also tests the effects of exogenous housing policies on price premiums of HDB upgraders. It is hypothesized that HDB upgraders pay a higher price premium for ECs than in condominiums or apartments compared to other unconstrained buyers; and that the exogenous policy events (EC Land Supply Suspension Policy and Raised Income Ceiling Policy) will have a binding effect on price premiums of HDB upgraders when they upgrade to ECs. By using the Difference-in-Differences (DID) hedonic regression as the research methodology, and with the private non-landed transaction data extracted from Real Estate Information System (REALIS), the hypotheses are tested by controlling for building attributes, spatial attributes, year fixed effects and location fixed effects. By using the sample of new EC sales to eliminate any income constraint effects, the results showed that HDB upgraders who are income constrained will pay a price premium of 2.3% to upgrade to ECs, relative to the control group of buyers. In addition, the exogenous policy events have statistically significant coefficients in the various empirical models. The results imply that the policy shocks have significant impact on the price premiums paid by HDB upgraders before and after the policies shocks. Furthermore, the statistically insignificant results from the placebo tests further supports the policy effects and affirms the robustness of the DID models. Overall, this study contributes to the existing literature by providing sufficient empirical evidence regarding the price premiums of HDB upgraders and investigate the factors that can account for it.