Real Estate Market Dynamics in Singapore

This assignment delves into the intricate workings of Singapore's real estate market. It examines how economic indicators like GDP growth and business cycles impact property prices and market volatility. The analysis also sheds light on the role of financial crises in shaping the real estate landscape. Furthermore, it explores government policies implemented to address market fluctuations, particularly after a peak in property values observed in 2013.

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PRINCIPLES OF ECONOMICS

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Executive summary
This paper contains a report that deals with the recent increase in the prices of the
properties in real estate market of Singapore. The real estate of this country has been very
much volatile due to the financial crises that it has faced and the business cycles it has gone
through in the past few decades. This paper shows the impacts of the factors market in the
supply and the demand which has increased the price of the properties in the market. Apart
from that the paper also furnishes the trend in the price levels and the actions the government
of the country has taken in order to curb the prices of the properties.

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Table of contents
Introduction................................................................................................................................4
Analysis of Singaporean residential property market................................................................4
Analysis of the factors market that controls the supply and demand in the Singaporean real
estate market...........................................................................................................................4
Price trend in the real estate market of the country................................................................6
Impact of interventions from the government........................................................................7
Conclusion..................................................................................................................................9
Reference..................................................................................................................................10

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Introduction
Singapore is a city-state based in the southeastern part of Asia. Despite having only
719 square kilometers of land, this country has GDP worth more than 537 US billion dollars.
Apart from that, with $93678, this country has the third highest per capita income. The
country is also very densely populated as 5.7 million people inhabit only 719 square
kilometer area of land. These exceptional economic performances of the country coupled up
with the increasing population in a limited land are creating an upsurge in the real estate
market of the country as well (Pow, 2017). The aim of this paper is to shed light on the
factors market of real estate market of Singapore which controls the supply and demand
along with the price levels. Apart from that, the paper also discusses the price trend in the real
estate market and the impact of government interventions in the recent years as well.
Analysis of Singaporean residential property market
Analysis of the factors market that controls the supply and demand in the Singaporean
real estate market
Generally, there are three of the main factor markets which influence the interactions
in the real estate markets in the world. These involve the land market, labour market, and the
investment market. The factor markets again depend on some of the sub factors that influence
the supply and demand in these markets. For example, demographics and economic
performances of the country impacts on the demand side of the market while the economic
performances and the policies of the government impacts on the supply side of the market
thereby attracting more investment from the national and the foreign market.
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2016
2017
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Population growth in singapore
Population
Figure 1: The population growth of the country
(Source: Pow, 2017)

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The land market is highly influenced by the increase in the population of the country.
According to the data of Javed et al. (2018), currently, the population of the country is
increasing at a rate of 1.3% per year. In relation to that, the supply of land in the country for
real estate purpose is not increasing at the desired rate. This has called for a shortage in the
land market causing the price of the market to go up. Another force that works in this market
is the fact that, preferences of the citizen to buy a new home in the heart of the city has gone
up. Pow (2017) stated that this is due to the recent economic performances of the country.
The per capita income of the country in the year 2010 was around $45376 which increased to
$93768 in the year 2017. Increase in the purchasing power of the people and the lack of
supply resulted in an upsurge in the price level in the real estate market of Singapore.
Labour or the employment also is one of the prime factor markets that influence
supply and the demand in the real estate market. In the case of Singaporean real estate
market, the employment opportunity and the wages of the labours increased significantly
following exceptional economic performances of the company in this decade. According to
Shatkin (2016), the increased wages in the real estate market further increased the price of the
properties. In addition to that, the investment market in the Singaporean economy boomed
after the economic crisis that this area faced back in the year 1996. Continued and consistent
economic performance with low levels of political turbulence has resulted in a huge inflow of
foreign investment in the economy including the real estate industry. However, Rogmans and
Ghunaim (2016) pointed out that, the flow of the investment has not always been the same.
Along with the business cycle, the investment in the real estate sector has changed time and
again. In the recessionary phase of the business cycle, investment plummeted explaining the
volatility in the real estate industry of the country. This also implies that the prices of the real
estate industry are directly related to the GDP of the country as well.
Price trend in the real estate market of the country
Figure 2 depicts the trend in the price levels in the industry from the year 1975 to
2016. In this figure, the base price of 2009 has been considered as 100 and the prices of other
years have been calculated in relation to the base price of that year. For example, when the
prices of real estate increased to 180 in the year 2013 it was actually 180% of prices in the
year 2009 which is the base year.

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Figure 2: The real estate price of the country from 1975 to 2016
(Source: Rogmans and Ghunaim, 2016)
The figure clearly depicts that, values of the real estate and the corresponding prices
in the market has increased over the time for both the landed and non-landed properties. It
also supports the claim that business cycle impacts the value or the prices of the property in
the real estate market of Singapore. The financial crisis faced by the Singaporean economy in
the year has been reflected in the plummeted price level in the sector. Again, the post-
financial crisis of 2009 has shown a steady increase in the prices or the values of the real
estate industry in the country. Jiang et al. (2015) commented that the underlying force that
controls the price corresponding to the changes in the GDP of the country is the appetite of
the investors. During recession investment in the sector fell sharply allowing the prices of the
godown. However, during the boom phase of the business cycle, the craze among the
investor's increased which pushed the price level to go up. Du and Luo (2015) pointed out
that the recent volatility in the real estate market of the country is due to the fact that the
country has survived two back to back recessions apart from the regular business cycles.
These resulted in the volatility in the prices of the property in the Singaporean market.
However, it is interesting to note that, prices have increased steadily till it reached its peak in
the year 2013. However, interventions from the side of the government also kept the price
level under control which eventually resulted in a fall in price in the real estate industry.

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Impact of interventions from the government
A number of property curbing techniques have been used by the government of the
country in the recent years. One of them is the policy that limits the bank to provide loans to
the customers, payment of which is more than the 60% of the overall income of the
individual. This action from the government has resulted in a reduced number of loan
sanctions to the customers of the market. Du and Luo (2015) highlighted that this has also
reduced the tendency of the individuals to buy multiple properties as well. This action has
allowed the government to reduce the demand for loan without increasing the interest.
Excessive increase in the price level of the industry has been well managed since the third
quarter of 2013 with this action. Apart from that, higher stamp duties on purchased properties
also have discouraged the multiple property holding. The table 1 shows that with the increase
in the price or the value of the property, liabilities of the owner also increases leading to a
discouragement of excessive property demand.
Purchase Price or Market Value (whichever is
higher) Buyer's Stamp Duty
First S$180,000 1%
Next S$180,000 2%
Remaining Amount 3%
Purchase Price or Market Value (whichever is
higher) Buyer's Stamp Duty
Table 1: The stamp duties on property holding
(Source: Cvijanović, 2014)
A problem that increased the price in the market was the temporary ownership of the
properties. Jiang et al. (2015) stated that investors indulged in the practice of temporary
ownership of the properties so that they can be flipped in the case of any changes in the
values of the properties in the market. Thus, the government also has come up with the
policy that curbs the short term holding tendencies of the investors of the market.

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Real Estate Holding Period Seller's Stamp Duty
Up to 1 Year 16%
1-2 Years 12%
2-3 Years 8%
3-4 Years 4%
+4 Years 0%
Table 2: The varying duty as per the holding period of the properties
(Source: Ang et al. 2015)
According to Javed et al. (2018), this action from the government encouraged the
property holders to own the properties for a longer period of time so that, their actions do not
impact the overall prices and the values of the real estate market of Singapore.
Conclusion
Thus, volatility and the recent upsurge in the prices of the properties in the real estate
market of Singapore has been a serious concern for the government. The study finds out that,
factors market such as the land, labour and the behaviours of the investors influences the
supply and the demand of the real estate market of the country. In addition to that, the price
levels and the volatility of the market has also been explained by the business cycles and the
financial crises faced by the economy of the country. The study furnishes that, with the size
of the economy, the prices or the values of the real estate properties have gone up with a
slight disturbance in between due to the financial crises and the business cycle. The paper
also presents the actions that government has taken after the price of the properties in the
market reached its peak in the third quarter of 2013.

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Reference
Ang, J.R.D., Tan, M.C. and Telmo, J.A.R., 2015, January. Exploring the existence of optimal
capital structure and its effects on tax arbitrage and shareholder wealth creation in the
philippine real estate industry. In Global Conference on Business & Finance
Proceedings (Vol. 10, No. 1, p. 368). Institute for Business & Finance Research.
Cvijanović, D., 2014. Real estate prices and firm capital structure. The Review of Financial
Studies, 27(9), pp.2690-2735.
Du, X. and Luo, Y., 2015. Optimized Research on Capital Structure of Listed Companies in
Chinese Real Estate Industry. In Proceedings of the 2015 International Conference on
Management, Education, Information and Control (pp. 536-541).
Glaeser, E., Huang, W., Ma, Y. and Shleifer, A., 2017. A real estate boom with Chinese
Characteristics. Journal of Economic Perspectives, 31(1), pp.93-116.
Javed, A.A., Zhan, W. and Pan, W., 2018. A System Dynamics Framework of Drivers and
Constraints to Enhancing Productivity of the Hong Kong Construction Industry.
In Proceedings of the 21st International Symposium on Advancement of Construction
Management and Real Estate(pp. 117-127). Springer, Singapore.
Jiang, L., Phillips, P.C. and Yu, J., 2015. New methodology for constructing real estate price
indices applied to the Singapore residential market. Journal of Banking & Finance, 61,
pp.S121-S131.
Pow, C.P., 2017. Courting the ‘rich and restless’: Globalisation of real estate and the new
spatial fixities of the super-rich in Singapore. International Journal of Housing Policy, 17(1),
pp.56-74.
Rogmans, T. and Ghunaim, M., 2016. A framework for evaluating sustainability indicators in
the real estate industry. Ecological indicators, 66, pp.603-611.
Shatkin, G., 2016. The real estate turn in policy and planning: Land monetization and the
political economy of peri-urbanization in Asia. Cities, 53, pp.141-149.
Wu, J., Gyourko, J. and Deng, Y., 2015. Real estate collateral value and investment: The case
of China. Journal of urban Economics, 86, pp.43-53.

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Yu, S.M., 2016. Role of Real Estate Service Providers in Growing the Real Estate Industry.
In SINGAPORE'S REAL ESTATE: 50 Years of Transformation (pp. 101-112).