No Bubble In Property Market: NUS Study

Source : The Straits Times, Oct 19, 2007

DESPITE Singapore's red-hot property prices, no bubble is forming in the property market here, according to a study by National University of Singapore (NUS) economists.

FINDING: The rise in home prices is below the market's long-run 'equilibrium' level, according to the study led by Prof Abeysinghe.

In fact, the rise in home prices is below the market's long-run 'equilibrium' level, based on factors such as income and property supply, preliminary findings of the ongoing study show.

In other words, the pace of housing price rises is still below the level that would be expected based on market fundamentals, according to the study conducted by a team led by Associate Professor Tilak Abeysinghe.

This is unlike the case in the early 1980s and mid-1990s, when property price inflation shot up above its long-term equilibrium levels, the study noted.

Early findings from the study, still a work-in-progress, was presented to a small audience at the Singapore Economic Policy conference yesterday.

House-price inflation is expected to hit 18 per cent this year, before easing to 13.7 per cent next year, and then to 3.2 per cent in 2009 and 3.4 per cent in 2010, the NUS team's model predicted.

Factors used to determine the equilibrium price level include disposable income per person, housing stock and the new supply of property.

The study also found that it takes a long time for property price inflation to adjust to its long-run equilibrium.

And a rise in property price inflation would lead to a spike in construction investment a year or so down the road, but its effect fades after that.

The study concluded that price bubbles should be avoided, as they affect private consumption as well as income redistribution, among other things.

Prof Abeysinghe is the deputy director of the Singapore Centre for Applied and Policy Economics at the NUS, which organised yesterday's meet.

The one-day conference also saw speakers examine issues ranging from fertility, migration and labour market trends, to CPF savings and the elderly.

The paper, entitled Singapore's Property Market And The Macroeconomy, can be viewed at http://nt2.fas.nus.edu.sg/ecs/cent/ESU/conference.htm