The notion that the local property market reflects the economy's ups and downs is widely accepted, but a new study released by the Monetary Authority of Singapore (MAS) shows that the link is less clear cut.
It notes that there is effectively no correlation between business cycles and the property market here.
This is because external factors play a strong role in Singapore's growth performance, with exports accounting for about three-quarters of total demand.
The possible link between property prices and the wider economy has increasingly been the subject of academic study as well as a focus of government and central bank policies, due in part to experiences from the global financial crisis, the MAS said. Its research found that Singapore's housing cycle has a longer duration and is generally not synchronised with the overall business cycle.
This can be attributed, in part, to the occasional use of public construction to give the economy a boost during periods of weak growth, said the MAS, which released the findings alongside its biannual macroeconomic review yesterday.
During the global financial crisis, for example, the Government proceeded with contracts worth $18 billion to $20 billion.
It also brought forward $1.3 billion worth of wide-ranging construction projects, including Housing Board lift upgrading works.
The study also found that property price swings here often come after proportionally larger changes in sales volumes of new and resale homes. The standard demand-supply model of the housing market suggests that house prices will fall when demand is weak and volumes tend to be kept in check by low prices.
But price adjustments can be hindered by factors such as a mismatch of price expectations between buyers and sellers, high transaction costs and infrequent trades.
This, in turn, leads to larger changes in sales volumes relative to price movements.
Larger-than-expected volume adjustments during property market upswings or downswings likely reflect the role of developers in managing their inventories over the property cycle, the MAS noted.
Developers typically hold back on releasing new units during cyclical downswings to preserve profit margins.
Finally, the study found that despite being volume-driven, the impact of housing cycles on the domestic labour market has been limited, as Singapore's construction sector has been able to adjust flexibly to fluctuations in the residential property sector.