MI 2024 PU3 H2 Econs Prelim P2 Suggested Ans for Sharing

2024 PU3 H2 Economics (9570) Prelim Paper 2 Suggested Answers 1 1 In 2021, in response to a large rise in residential property prices, the Singapore government raised the Additional Buyer’s Stamp Duty (ABSD). This is a tax that buyers must pay for purchases of residential properties. The authorities also pledged to increase the supply of both public and private housing to meet demand. Source: Monetary Authority of Singapore, December 2021 (a) Explain why there might be a large rise in residential property prices in Singapore. [10] (b) Discuss the effectiveness of the above measures to ensure that the residential property prices remain stable in Singapore. [15] Command word Explain why – reasons Concept Large rise in prices – demand and supply factors, price elasticities of demand and supply Context Property prices in Singapore R1: Explain how DD factor and PES leads to a large increase in prices of residential property in Singapore R2: Explain how SS factor and PED leads to a large increase in prices of residential property in Singapore Requirement Suggested answer Introduction Given Singapore’s land constraints, there is a limited amount of land that can be allocated residential properties. This coupled with aspirations of Singaporeans to own home as higher prices caused by an increase in demand and a limited supply. R1: Explain how DD factor and PES lead to a large increase in prices of residential property in Singapore • There has been an increase in demand for residential properties in Singapore. This can be due to any of the following factors: o There has been increase aspirations of the population to own their own homes, even from single children who prefer to live on their own away from their parents. This change in taste and preference towards buying a residential property has resulted in an increase in demand. o At the same time, as Singapore recovers from Covid -19 and the economy opens up, the incomes of households have increased. Given the residential properties are normal goods, where a rise in income leads to a rise in demand (i.e. Income elasticity of demand (YED) > 0), the demand for residential properties will rise in tandem with income. o With the economy opening up, more foreigners are returning to Singapore to work and live. This will drive up demand for residential properties, given that foreigners will need a place to stay while in Singapore. Even if foreigners are looking to rent a place over a shorter- term period of 6 months to 1 year, this will induce increase in demand for residential properties among locals who seek to purchase the properties to rent out as a form of investment. o With higher incomes and positive economic outlook, consumers may have expectations of future increases in the price of residential

2024 PU3 H2 Economics (9570) Prelim Paper 2 Suggested Answers 2 properties. This coupled with a rise in demand for renta