CYCLICAL SENSITIVITY BETWEEN THE SINGAPORE RESIDENTIAL PROPERTY SECTOR AND THE MACROECONOMY

Abstract

The dynamics of house price (PPRI) and rent (PPREI) movements has always been of interest to interested parties who are affected by their day-to-day fluctuations. To build on existing studies, spectral analysis techniques in the frequency domain will be adopted on top of correlation and co-integration techniques used in the time domain. In the first objective, property cycles were general found to be longer and more cyclical in duration than the macro-economic variables’ cycles. While macro- economic cycles and rent cycles have remained fairly consistent in their duration, property price cycles have been shortening yet increasing in volatility. In the second objective, prices and rents were found to be highly correlated and prices typically lead rents in both up and down markets. GDP, inflation rate and unemployment rate were significantly correlated with both price and rent, mortgage rate was significantly correlated with prices, while benchmark interest rates had no significant correlation. Informal turning point analysis found that while GDP leads prices in upturns, property prices tend to fall first during market downturns. ! In the third objective, little major cycle coherence were found between the property and macro-economic cycles, though some variables, such as PPRI-GDP, PPRI-1UR and PPREI-GDP. In the final objective, long-run co-integrating relationships were found for all the models, indicating presence of long run relationships between PPRI- PPREI, PPRI-Macro factors and PPREI-Macro factors. PPRI-PPREI long-run relationship self-corrects in the shortest time (4.8Q), followed by PPREI-macro (6.3Q) and PPRI-macro (8.3Q) Conclusively, the results indicate that while cycles in both the property and macro-economic cycles appear distinct, they share common cyclical characteristics and while they take a longer time to self-correct, they eventually do in the long-run and market practitioners should be mindful of them.