Real Estate Commons^™

Can The Next Housing – And Financial Crisis Be Averted?, Knowledge@Smu

Knowledge@SMU

The costs of the subprime crisis are still being tabulated. Taxpayers of many countries are still being penalised unfairly as their governments stagger under the burden of bailing out banks poisoned by the burst of the real estate market. Regulators, including the US Fed, need to play a more active role in shaping and implementing policies that will include those meant for the real estate market. According to Wharton professor Susan Wachter, the tools needed for such effective policing are still in development. Nevertheless, the process of learning to avert the next such crisis is already underway.

Supply Elasticity Of Housing, Kyunghwan Kim, Sock-Yong Phang, Susan Wachter

Research Collection School Of Economics

The supply elasticity of housing determines how quickly house prices respond to economic shocks and this has many real economic consequences. Malpezzi and Maclennan (2001) describes its importance in housing market analysis: „most housing models, and most policy analysis hinge on explicit or implicit estimates of the price elasticity of supply of housing: does the market respond to demand side shocks with more supply or higher prices‟. However, as pointed out by Quigley (1979), there exist real analytical difficulties in modeling the supply of housing. Attempting to measure the flow of housing services provided by the stock of housing is …

Public Housing: Appreciating Assets?, Sock Yong Phang

Research Collection School Of Economics

The topic of HDB housing is one that is close to the hearts and minds of the majority of Singaporeans. The first part of the presentation will provide a brief overview of price trends in Singapore’s housing sector. The second part delves into the market and policy factors behind the rapid increase in HDB housing prices since 2006. The monograph “Reflections on Housing a Nation” published by the Ministry of National Development in February 2011, contains numerous statements on the goals of housing policy. Briefly, the government is committed to affordable home ownership as a major pillar of Singapore’s public …

Warning System For Property Bubbles, Jun Yu, Peter C. B. Phillips

Research Collection School Of Economics

A commentary on what constitutes a sound system to warn against property bubbles.

Macroeconomic Effects Of Over-Investment In Housing In An Aggregative Model Of Economic Activity, Hian Teck Hoon

Research Collection School Of Economics

Is there a theoretical basis for the view that the end of a period of over-investment necessarily leads to a period of below-normal employment as the excess capital stock is run down? We study the repercussions of a false boom in housing driven by prior expectations of future housing prices not justified by fundamentals. When these expectations are corrected, the result is a precipitous drop in housing prices and, on that account alone, some drop in employment. There is also a bulge in the housing stock. In the closed economy case, the downward shift of the term structure of interest …

Macroeconomic Effects Of Over-Investment In Housing In An Aggregative Model Of Economic Activity, Hian Teck Hoon

Research Collection School Of Economics

Is there a theoretical basis for the view that the end of a period of over-investment necessarily leads to a period of below-normal employment as the excess capital stock is run down? We study the repercussions of a false boom in housing driven by prior expectations of future housing prices not justified by fundamentals. When these expectations are corrected, the result is a precipitous drop in housing prices and, on that account alone, some drop in employment. There is also a bulge in the housing stock. In the case of a closed economy, the downward shift of the term structure …

Building Beyond Singapore: Local Real Estate Businesses Venture Overseas, Knowledge@Smu

Knowledge@SMU

Despite the recent property and construction boom in Singapore, local players in this field have always kept an eye on overseas markets. Lured by the promise of profits and prestige, many are setting up in cities around the world. However, unlike consumer mom-and-pop shops, the size of the investment typical of property and construction companies demands an ultra careful study of the overseas market. Companies have also got to ask if they have the required skills, talents and resources to churn a good project, said industry experts at a recent SMU forum.

Affordable Homeownership Policy: Implications For Housing Markets, Sock Yong Phang

Research Collection School Of Economics

Affordable homeownership is a policy that is often accorded a great deal of policy attention by governments of many countries. This paper aims to examine the market implications of setting a housing price to income ratio target for a market segment by the government. The policy requires active intervention by the government with regard to the targeted sector. The paper uses a simple model of the housing market with a homeownership affordability target to derive the market implications of such targets. In the presence of uncertainty and resource constraints, the objective of homeownership affordability is achieved for the targeted group …

Housekeeping For Regulators Of Volatile Housing Markets, Knowledge@Smu

Knowledge@SMU

World housing markets have gone through a volatile period of boom and bust, triggering the financial crisis and subsequent economic downturn. While it might be tempting for governments to contemplate on housing bubbles by means of monetary policy or direct controls over housing prices, such moves are far more complicated than it seems. Housing prices are influenced by various factors and governments have a limited handle on them at best. Raising interest affects other sectors of the economy - not just housing. So what can governments do? What should be the ultimate goal of housing policy?

Affordable Homeownership Policy: Implications For Housing Markets, Sock Yong Phang

Research Collection School Of Economics

Affordable homeownership is a policy that is often accorded a great deal of policy attention by governments of many countries. In this paper, we examine the market implications of setting a housing price to income ratio target for a market segment by the government. The policy requires active intervention by the government with regard to the targeted sector. We use a simple model of the housing market with a homeownership affordability target to derive the market implications of such targets. In the presence of uncertainty and resource constraints, the objective of homeownership affordability is achieved for the targeted group at …

Why Should Investors Stay Positive On The Asian Real Estate Markets?, Knowledge@Smu

Knowledge@SMU

Asia’s real estate market has weakened in tandem with lower equity prices. Singapore is no exception. Gone (for now) is the frenzied buying that marked 2007 and 2008, as everyone hunkers down for a possible protracted slump in the global economy. Many property buyers are caught with assets declining in value. Should investors thus stay away from Asia’s property market? What are the challenges facing the industry players, and is there a recovery on the horizon?

Profit Or Growth: Can Singapore's Building And Construction Industry Attain Both?, Knowledge@Smu

Knowledge@SMU

Singapore’s building and construction industry accounts for about 4% of gross domestic product. Working closely with the country's Building and Construction Authority (BCA), the Singapore Management University (SMU) recently launched a SMU-BCA advanced joint management programme to develop strategic management capabilities of senior executives in the sector. Six panelists comprising industry leaders participated afterwards in a discussion on “Profit or Growth – How to Attain Both”, moderated by SMU’s dean of executive and professional education, Annie Koh.

Subprime Lending: Did It Lead To The Real Estate Boom And Bust?, Knowledge@Smu

Knowledge@SMU

Is there a link between the availability of aggressive home loan lending and the price of homes? In a paper presented at the Far East and South Asian Meeting of the Econometric Society 2008, hosted by the Singapore Management University, Wharton professors Susan Wachter and Andrey Pavlov show that it is the fluctuation in the use of aggressive instruments which exacerbates the market downturns, and not the fact that such instruments generate higher default rates.

Preventing A Real Estate Bubble In Asia: Can Loan Securitisation Help?, Knowledge@Smu

Knowledge@SMU

Real estate is among the most highly leveraged sectors of an economy, which makes it more likely than others to precipitate a financial crisis, as happened in some Asian countries in 1997-1998. At the recent East Asian Seminar on Economics (EASE) of the National Bureau of Economic Research (NBER), held at Singapore Management University, Richard Green, Roberto S. Mariano, Andrey Pavlov and Susan Wachter presented a joint paper suggesting that asset securitisation could help reduce such risks. --------------------------------------------------------------------------------

Moving Window Unit Root Test: Locating Real Estate Price Bubbles In Seoul Apartment Market, Shuping Shi

Dissertations and Theses Collection (Open Access)

Bubbles are characterized by rapid expansion followed by a contraction. Evans (1991) shows that stationarity tests suggested by Hamilton and Whiteman (1985) and Diba and Grossman (1988) are incapable of detecting periodically collapsing bubbles. Phillips, Wu, and Yu (2006) advanced the forward recursive unit root test which improves the power significantly in the presence of periodically collapsing bubbles. In this paper, we consider rolling window unit root test with a pre-selected optimum window. A combining use of conventional unit root test and forward recursive unit root test is suggested from the results of power comparison. Furthermore, we apply those three …

The Singapore Model Of Housing And The Welfare State, Sock Yong Phang

Research Collection School Of Economics

While Singapore is not generally regarded as a welfare state, the provision of housing welfare on a large scale has been a defining feature of its welfare system. The extensive housing system has played a useful role in raising savings and homeownership rates as well as contributing to sustained economic growth in general and development of the housing sector in particular. Few would dispute the description of Singapore’s housing policies as 'phenomenally successful' (Ramesh, 2003). Singapore’s economic growth record in the past four decades has brought it from third world to first world status (Lee, 2000), with homeownership widespread at …

Going Up: Real Estate Is On The Rise Again In Japan, Knowledge@Smu

Knowledge@SMU

Nothing symbolizes Japan's bubble economy, or its subsequent long slump, more than real estate. Now, after dropping by as much as 70%, real estate prices are ticking up, signaling a renewed Japanese economy. A major restructuring of the nation's financial system, along with an injection of foreign capital and the introduction of publicly traded real estate investment trusts, are driving the real estate revival, according to Wharton faculty and real estate analysts working in Tokyo.

Global Hotspots In The Real Estate Business, Knowledge@Smu

Knowledge@SMU

Emerging real estate markets in India and China, along with recovering property industries in Germany and Japan, are among the top destinations for global real estate investors, according to panelists at the Samuel Zell and Robert Lurie Real Estate Center's fall meeting. During a session titled, "Global Hot Spots -- How to Think about Hot Foreign Markets," Wharton real estate professor Peter Linneman called on each panelist to describe the markets they find most intriguing.

The Rise In House Prices In China: Bubbles Or Fundamentals?, Jianying Hu, Liangjun Su, Sainan Jin, Wanjun Jiang

Research Collection School Of Economics

The dramatic rise of house prices in many cities of China has brought huge attention from both the governmental and academic circles. There is a huge debate on whether the increasing house prices are driven by market fundamentals or just by speculation. Like Levin and Wright (1997a, 1997b), we decompose house prices in China into fundamental and non−fundamental components. We also consider potential nonlinear feedback from the historical growth rate of house prices on the current house prices and propose a semiparametric approach to estimate the speculative components in the model. We demonstrate that the non−fundamental part contributes a relatively …

Investing In Real Estate: Mortgage Financing Practices And Optimal Holding Period, Winston T. H. Koh, Edward H. K. Ng

Research Collection School Of Economics

Real estate investments are typically characterized by high degrees of leverage and long loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provide a simple rule to calculate the optimal holding period is to compare the required rate of return with the leveraged rate of return on equity.

Bank Lending And Real Estate In Asia: Market Optimism And Asset Bubbles, Winston T. H. Koh, Roberto S. Mariano, Andrey Pavlov, Sock-Yong Phang, Augustine H. H. Tan, Susan M. Wachter

Research Collection School Of Economics

This paper investigates the Asian real estate price run-up and collapse in the 1990s. We identify financial intermediaries’ underpricing of the put option imbedded in non-recourse mortgage loans as a potential cause for the observed price behavior. This underpricing is due to behavioral causes (lender optimism and disaster myopia) and/or rational response of lenders to market incentives (agency conflicts, deposit insurance, or limited liability of bank shareholders). The empirical evidence suggests that underpricing occurred in Thailand, Malaysia, and Indonesia. Consequently, these countries experienced a more severe market crash than Hong Kong and Singapore, where underpricing was kept under control by …

The Creation And Economic Regulation Of Housing Markets: A Comparison Of The Experiences Of Singapore And Korea, Sock-Yong Phang

Research Collection School Of Economics

Privatization, creation of markets and economic regulation are terms that few would immediately associate with the housing sector. Mainstream housing markets in most of the free market economies of the developed world are regarded as competitive markets, with little need for economic regulation of the market. Regulations that attempt to control behavior directly are generally limited to policies relating to rent control, the provision of rental housing or rental allowances for lower income groups, as well as land use regulations and building controls.

The housing sectors of Singapore and Korea are highly unusual in the extent of government involvement and …

Investing In Real Estate: Mortgage Financing Practices And Optimal Holding Period, Winston T. H. Koh, Edward H. K. Ng

Research Collection School Of Economics

Real estate investments are typically characterized by high degrees of leverage and long-loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provide a simple rule to calculate the optimal holding period to compare the required rate of return with the leveraged rate of return on equity.

House Prices And Fundamental Value, John Krainer, Chi Shen Wei

Research Collection Lee Kong Chian School Of Business

The performance of the residential housing market over the last ten years has been remarkable. According to the Office of Federal Housing Enterprise Oversight (OFHEO), house prices have appreciated at an annual rate of 5.4% on average (68.9% over the whole time period). Perhaps even more remarkable is that the performance was strong even when economic activity overall was weak. Average annual appreciation rates have been 7.4% (26% in total) since the collapse of the Nasdaq in 2000 and 7.1% (20% in total) since 2001:Q1, the beginning of the 2001 recession. In contrast, since the start of the 2001 recession, …

The Impact Of Housing Prices On Aggregate Consumption: Evidence From An East Asian City-State, Sock-Yong Phang

Research Collection School Of Economics

Using aggregate consumption data for Singapore, this paper rejects the life-cycle/permanent income and myopia hypotheses as explanations for aggregate consumption behavior. We confirm the presence of liquidity constraints from the asymmetric reaction of consumption to income increases vis-a-vis income declines. When we allow for asymmetric response, anticipated house price increases appear to have a dampening effect on aggregate consumption while declines in expected house price growth also had a negative effect on consumption, although the results are statistically insignificant. There is no evidence that the housing price increases have produced either wealth or collateral enhancement effects on consumption.

Housing Policy, Wealth Formation And The Singapore Economy, Sock-Yong Phang

Research Collection School Of Economics

This paper evaluates the contribution of housing policy in Singapore to financial sector development, housing wealth formation and macro-economic performance, both retrospectively and prospectively. It provides an overview of past housing policies and traces the linkages to the financial sector. Housing policy as effected through the Housing and Development Board and the Central Provident Fund (CPF) hampered the development of the commercial housing loans sector and domestic financial markets, but contributed to the overall growth and stability of the housing loans market and associated financial institutions. Housing policy and the trend of housing asset inflation contributed significantly to the formation …

Hong Kong And Singapore, Sock Yong Phang

Research Collection School Of Economics

There are many similarities between Hong Kong and Singapore. They have both enjoyed high rates of economic growth over the past three decades, averaging six percent a year in real terms. The two have become known as “East Asian Tigers,” having made the transition from poverty to newly industrialized economies in a relatively short time. Both started off as British colonies, with British legal and administrative systems, and made their living as trading ports serving their respective regions. Singapore has been an independent republic since 1965; Hong Kong was returned to China on July 1, 1997. While Hong Kong and …