The effectiveness of public intervention in the property market

Abstract

By examining the property market and its contextual socio-economic development in 1980s Singapore, this paper tackles the issue of effectiveness of government intervention in an inefficient property market within the framework of a free market economy. Induced by seemingly perpetual economic growth and by the drive for structural upgrading of the economy, development of property across all sectors responded by an upsurge in volume at the beginning of the 1980s. However, oversupply of property loomed consequently as supply overtook demand. Vacant floor areas were accumulated until the market hit the sudden unexpected recession of 1986 when property values were dampened down in the doldrums. The government decided to intervene with comprehensive measures, intending to prevent the market from further deterioration. Based on a conceptual framework, the effectiveness of the intervention in the property market is evaluated. It is found that the Central Provident Fund and property tax rebate are helpful to some extent in encouraging demand for investment and occupation. Nevertheless, market fundamentals should be taken into consideration in interpreting why the private housing market is more responsive than non-residential property markets to the interventions. Government interventionist instruments only serve as catalysts which work together with other right ingredients. On the whole, the total recovery of the property market is due to the reviving of the economy.