THE RELATIONSHIP BETWEEN LEASE DECAY AND RESALE PRICES IN THE PUBLIC HOUSING MARKET

Abstract

This study examines the relationship between lease decay and housing value in Singapore's public housing market. Existing literature overseas has established the presence of leasehold discounts across varying lease terms which support the basic economic theory of the pricing of a depreciating asset. However, no comprehensive studies have been done in Singapore and especially not in the public housing markets.

A hedonic pricing model is used in this study to isolate the effects of lease decay. Empirical evidence confirms an expected positive relationship between balance lease remaining and housing value.

Another key finding is that the rate of housing value depreciation due to lease decay is slower in flats that are newer compared to flats that are older. This supports existing literature and is evidence that the market behaviour of homebuyers in Singapore's public housing market are sophisticated and that Singapore's public housing resale prices are consistent with economic theory.