http://www.businesstimes.com.sg/gove...usiness-cycles

MAS: Housing sector has no strong link to jobs and business cycles

By Soon Weilun

[email protected]

@SoonWeilunBT

Oct 28, 2015


THERE is no strong correlation between how the housing market performs in Singapore and business cycles in the country.

In addition, the housing market's impact on the domestic labour market is also limited, said the Monetary Authority of Singapore (MAS) in its Macroeconomic Review report that was released on Tuesday.

In the report, the central bank attempted to investigate the relationship between housing and business cycles in Singapore.

In comparing nine growth recession episodes identified for the Singapore economy, it found that the contribution of residential investment to overall growth in gross domestic product was "modest or countercyclical". The 1985 recession and the Asian Financial Crisis in the late 1990s were the exceptions.

A reason for this, MAS noted, was "the occasional use of public construction as a countercyclical stabilisation tool during periods of weak growth".

It also noted that cycles in the housing market have little impact on the workforce here.

"Singapore's construction workforce is generally able to adjust flexibly to changes in demand," it said, adding that foreign workers are laid off during a downturn. As housing sales and construction activity decline, foreign workers are laid off, "so there is no increase in resident unemployment in the housing sector".

Last Friday, Nomura published a report saying that a 10 per cent decline in property prices here would only result in a cumulative 0.6 percentage point drop in real GDP growth.

Mizuho economist Vishnu Varathan agreed with points made in these two reports.

He pointed out that adjustments in the housing market will take place gradually, and it is the broader outlook that affects business cycles.

"The property market is different, because it is the result of the confluence of supply of property, and prospects of where the market is headed," he said.

"Thus, even if the property cycle continues to be on a downtrend, we are already seeing a troughing of the business cycle."