New Supply and Price Dynamics in the Singapore Housing Market

In this paper, VAR models are employed to trace the price response of existing houses to the quantity of new units launched by homebuilders in Singapore between 1996 and 2009. Contrary to the 'competition' hypothesis prediction of a negative reaction, it is found that marginal supply Granger-cause existing house prices in a positive manner. The effect is robust to the inclusion of exogenous demand factors as well as price interaction in the primary (new houses) and secondary (existing houses) market segments. The 'contagion' effect is consistent with the hypothesis that developers, due to their ability to predict the market, are price leaders in the housing market. It is also found that homebuilders exhibit 'herding' behaviour in mimicking each other's timing on when to market their new residential projects.