Discuss about the Prices Of The Properties In Real Estate Market Of Singapor.
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 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.
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.
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.
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.
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.
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.
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.
References
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.
Cvijanovi?, 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.
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).
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