Asymmetric Price Response to Supply: Evidence from Singapore

Abstract

Prices in the Asian residential property markets have skyrocketed over the past decade. A high rate of economic growth is one of the major reasons for the price spiral. Most Asian residential property markets are, however, concentrated and national in nature. Maintaining an artificially high price level through coordination amongst producers is not impossible and would be the natural choice of oligopolistic behavior (Scherer and Ross, 1990). This study examines price responses to changes in economic determinants in Singapore. The focus is on supply. Cointegration and error-correction techniques are employed to test if upward and downward adjustment speeds are similar. The results verify the impact of GDP growth, but also show that price response to the supply of housing units is significantly downward rigid. This is not inconsistent with the hypothesis of collusive price setting by property developers.
 

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