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Are House Prices Driven by Capital Flows? Evidence from Singapore

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  • Hwee Kwan Chow

    (School of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903)

  • Taojun Xie

    (#x2020;Sim Kee Boon Institute for Financial Economics, Singapore Management University, 81 Victoria Street, 8th Level, Administration Building, Singapore 188065)

Abstract

This paper investigates whether real house price appreciations can be attributed to the surge in real capital inflows into Singapore. We proxy capital flows by using the amount of Foreign Direct Investments (FDI) to real estate capturing the foreign purchases of property in Singapore which we deflate by the private residential property price index. Notwithstanding the absence of a cointegrating relationship, our results support the hypothesis that lagged short term fluctuations in capital inflows are positively associated with the growth rates of house prices over the last decade. We also provide evidence that macroprudential measures implemented by Singapore reduced the impact of capital inflows on house price appreciation by more than half, suggesting the effectiveness of such market cooling measures in weakening the credit growth channel.

Suggested Citation

  • Hwee Kwan Chow & Taojun Xie, 2016. "Are House Prices Driven by Capital Flows? Evidence from Singapore," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, February.
    • Handle: RePEc:wsi:jicepx:v:07:y:2016:i:01:n:s179399331650006x
    DOI: 10.1142/S179399331650006X
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    2. Kneer, Christiane & Raabe, Alexander, 2019. "Tracking foreign capital: the effect of capital inflows on bank lending in the UK," Bank of England working papers 804, Bank of England.
    3. Yang Zhou, 2022. "The Effects of Capital Controls on Housing Prices," Discussion Paper Series DP2022-29, Research Institute for Economics & Business Administration, Kobe University.

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