Housing Loan and the Price of Housing in Singapore

Kwame Addae-Dapaah, Mai Ngoc Anh
(Department of Real Este, School of Design & Environment, National University of Singapore, Singapore 117566)

Abstract: We use the Johansen co-integration test and the Vector Error Correction Model (VECM) to analyze data on housing loan, housing price, interest rate and GDP from 19911Q to 20102Q to particularly ascertain the extent to which housing loan affects house prices in Singapore. The results show the existence of a long run co-integration among housing loan, house price, interest rate and GDP. Furthermore, housing loan is found to be positively correlated with house price and GDP but negatively correlated with interest rate in the long run. There seems to be no correlation between housing loan and house price in the short run. Moreover, a change in housing loan per se does not affect house price, neither does a change in house price per se affect housing loan in the short run. Thus, while there is long run equilibrium among housing loan, house price, interest rate and GDP, the causality direction between housing loan and house price is somewhat obscure. This implies that targeting housing loan as a means to control property price inflation in Singapore may not achieve the immediate desired result.

Key words: housing loan; housing price; Johansen test; vector error correction model; correlation

JEL codes: C12, C30, C32, R21, R30, R38