PRICE DISCOVERY BETWEEN SHOEBOX AND NON-SHOEBOX HOUSING MARKETS IN SINGAPORE

Abstract

This paper examines whether shoebox housing market Granger cause the non-shoebox market and the overall private residential market, given the proliferation of shoebox units in the past few years. A pseudo-Urban Redevelopment Authority (URA) price index is constructed for the shoebox market so as to formulate a common basis for comparison. Empirical analysis reveals that the overall private property market in fact leads the shoebox market by up to two quarters in addition to the long-run cointegrating relationship which both markets share. In contrast, no lead-lag relationship is found to exist between shoebox and non-shoebox housing markets even though both markets are integrated in the long run. The paper also attempts to investigate the process of price discovery between new sale and secondary sale sub-markets of shoebox units. Results show that a unidirectional causality runs from the secondary sale market to the new sale market, but not the reverse. Moreover, evidence of speculation is discovered in the shoebox market during the residential market boom. More interestingly, a high correlation is found to be present between the realised investment returns of shoebox units and the transaction volume of shoebox properties under new sale.