Price Discovery and Segmentation in the Public and Private Housing Markets in Singapore

Public housing is the largest housing submarket in Singapore. There is also an active resale public housing market, where public housing dwellers are allowed to trade their houses after a time-bar of five years from the date of their purchase. This segment of resale HDB market is liken the private housing submarkets, where housing prices are more likely to fluctuate in accordance to the market and economic cycles. Using the STOPBREAK tests proposed by Engle and Smith (1999), the study rejected the random walk null hypothesis for relative prices in pairs of the HDB resale price and other private housing prices. The public and private housing market is thus not segmented. When we further examined whether the STOPBREAK process persist in other pairs of private housing submarkets, we found weak evidence to suggest the stratification of the private housing market. We also found that price discovery processes between the resale HDB housing market and other private submarkets occurred through at least one cointegrating equation in our vector autoregressive error correction models (VECM). In the private housing submarkets, we observed significant and positive price effects from detached submarket to other private housing submarkets, which may imply that the increase in housing wealth of detached households, who are less financially constrained, will motivate them to allocate part of their accrued wealth through investment in other private housing submarkets. The wealth accrued in detached housing submarket is translated into price increases in other private housing sector.