Astonishing Track Records of Singapore Property

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Track Records

Maintaining stability in property markets has been a challenge for monetary authorities across Asian economies in the last few years. Between 2005 and 2008, property prices rose sharply, but then they were reversed during Global Financial Crisis, as incomes, business confidence and access to financing were affected. Thereafter, Asian economies rebounded and so did property prices, reaching record levels in several countries. A specific feature of property markets is that supply is somewhat inelastic in the short term.
Property is a relevant sector in Singapore as it is the largest component of household wealth. Property market stability is therefore closely linked with macroeconomic and financial stability. So, to assess specific market developments, we use data from Bank of International Settlements (2016) and the Singapore Department of Statistics (2016) on different sub-sectors. Generally speaking, the prices of property show an upward trend in the first graph, and we can see that they increased between 2002 and 2012. After that, the growth of prices seems to have slowed down.

Graph 1. Property Prices in Singapore
Property_Investment_Singapore_prices

Source: Own elaboration. Data from Bank of International Settlements

In despite of a recent slight decline or stagnation in property prices, all indexes are above their historical average as can be appreciated in Table 1, so the there is no need to worry about future persistent price declines because current conditions could be the result of transitory market developments.

Table 1. Summary Statistics of Property Price Indexes, 2002Q1-2016Q1

 Office Buildings Retail Buildings Industrial Property Residential Property
Mean105.5109.467.9117.1
 Standard deviation 23.6 15.9 25.1 28.5
Minimum 71.9 85.242.8 80.3
 Maximum 139.0 130.7 107.9 154.6

Source: Own calculation. Data from Bank of International Settlements.

Industrial properties and residential properties have a relatively high average percent change, while office and retail buildings tend to change less.

Table 2. Summary Statistics of Quarterly Change (%) in Property Price Indexes, 2002Q2-2016Q1

 Office Buildings Retail Buildings Industrial Property Residential Property
Mean0.70.51.21.0
 Standard deviation 3.6 1.8 3.9 3.9
Minimum -11.9 -4.8-10.1 -14.0
 Maximum 8.9 4.5 8.8 15.7

Source: Own calculation. Data from Bank of International Settlements.

Although prices of industrial properties have remained relatively low when compared to office buildings, retail buildings and residential property, all four indexes show strong correlation coefficients, which suggests that sub-sectors of the property market are highly interconnected, as one would normally expect.

Table 3. Correlation matrix of Property Price Indexes, 2002Q1-2016Q1
Office Buildings Retail Buildings Industrial Property Residential Property

 Office Buildings Retail Buildings Industrial Property Residential Property
 Office Buildings1
Retail Buildings 0.97 1
Industrial Property 0.92 0.911
Residential Property 0.93 0.96 0.87 1

Source: Own calculation. Data from Bank of International Settlements.

Foreign Direct Investment

Further, between 2006 and 2014, foreign direct investment in the real state sector grew at an average pace of 21% each year, and together with construction it accounted for around 3% of the total stock of foreign direct investment in 2014. On the other hand, the cumulative growth of foreign direct investment in real state during the whole period (1998-2014) was 566%, which shows that international investors of all kinds favor investments in Singapore properties due to the business climate of the country. Such amazing records are not easy to break, therefore the main expectation is that property investments will continue to grow during the next year, especially from those from abroad, and so will prices.

Graph 2. FDI in Real State

Property_Investment_Singapore_foreign_direct_invesment
Source: Own elaboration. Data from Singapore Department of Statistics.

References
Bank of International Settlements (2016). Property Price Statistics.
https://www.bis.org/statistics/pp.htm
Department of Statistics of Singapore (2016). Foreign Direct Investment. http://www.singstat.gov.sg/statistics/browse-by-theme/investment-tables

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