AN EMPIRICAL ANALYSIS OF CAPITAL APPRECIATION AND SUSTAINABLE GROWTH RATE OF SINGAPORE PRIVATE RESIDENTIAL PROPERTY MARKETS

Abstract

In Singapore, the private residential property market plays an important role in the macroeconomy. Since the mid-1980s, private residential property price has been rising steadily. The prices in the residential markets were more than doubled during the boom year in 1993 to early 1996. In May 1996, the government imposed measures to curb the speculation. Subsequently, the Asian financial crisis further weakened the property market. It was only in recent years that the prices start to recover. This study undertakes to investigate the market performance of the private residential properties, namely detached houses, semi-detached houses, terrace houses, apartments and condominiums. This is done by comparing their risk, return and risk-adjusted return performance against property stock and stock market. Research findings have shown that in most time periods, detached houses have been providing good returns and risk-adjusted returns. However, the outstanding performance was accompanied by higher level of risk. Although the performances of semi-detached houses, terrace houses and condominiums are not as outstanding as detached houses, they are definitely better than apartments. Apartments are classified as the worst performer. Among the five private residential properties, condominiums have the least risk. Next, results shown that the private residential markets display positive correlations and also the optimum portfolio is constructed by investing in detached houses and condominiums. The investment performance, as well as the degree of correlation depends on the investment horizon and market condition. Lastly, the optimal holding period for private residential properties are approximately 10 to 15 years.