SPATIAL CONCENTRATION OF FOREIGN BUYING ACTIVITIES AND IMPACT ON PRIVATE PROPERTY PRICES IN SINGAPORE

Abstract

The influx of foreigners and their purchases of residential properties in Singapore have sparked controversial issues since the liberalisation of the country’s immigration policy. This paper calibrates the spatial concentration trends of foreign homebuyers in specific planning areas and investigates the impact of such collective buying behaviour on the dynamics of private housing prices within each area, taking into account vested foreign demand and the herd behaviour in the selection of locational choices. The findings of this paper provides empirical evidence to support the postulation that concentration of foreign buying activities in selective planning areas spurs significant rate of housing price appreciation. As a contribution to the extant research on foreign buying behaviours, this paper also seeks to determine the dominant motivation underlying foreign home buying activities in Singapore and the effect of spatial concentration. As affirmed by the positive correlation, the hedonic pricing analysis reveals that the central areas and CBD fringe displays a higher rate of price appreciation and larger volatility in price movements due to the higher degree of foreign demand and concentration of buying activities in these areas. Using a fixed effect panel regression it was established that such spatial concentration has a significant effect on the housing prices within the selective planning areas, with the central region displaying a higher price increase in response to the larger extent of spatial foreign buying activities. The spatial concentration trends also suggested a gradual shift of buying interest to the CBD fringe which witnessed substantial price increases in the said location over the recent years. Moving on, the results from the panel vector autoregressive model and impulse response function implies that the housing prices take their cue largely from the past period of foreign buying activities and that such spatial concentration of collective buying behaviour acts as a distinct shock to the housing prices in each locality. Besides proposing the dominance of consumption motives driving foreign buying behaviour in Singapore, the analysis also indicates that housing price reacts positively to an increase in the foreign buying activities within a relatively short time frame and foreign homebuyers possess strong sustainable interest in the private property market despite the spiralling increase in private housing prices over the last decade.