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Reduced new supply and lengthening waits push demand into the resale market

A worked RES examination question on hdb resale index and policy, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.

Paper 1Lesson 9HDB resale index and policyFree — no sign-up

The question

An agent notices that resale flat prices have climbed steadily over eighteen months even though economic growth has been flat and the private residential index has barely moved. A colleague attributes it to the general economy. The agent points out that the supply of new flats offered for application has been reduced over that same period, and that waiting times have lengthened.

Which statement most appropriately explains the movement?

  1. A. Resale flat prices track economic growth more closely than any other single factor.
  2. B. Resale flat prices are set administratively and do not respond to supply at all.
  3. C. Reduced new-flat supply pushes demand into the resale market and lifts resale prices.
  4. D. The movement must be a data artefact, since prices cannot rise while growth is flat.

The answer, and why

Answer: C

The rule. Resale flat prices are driven principally by swings in the supply of new flats offered for application rather than by general economic conditions. Reduced new supply and lengthening waits push demand into the resale market.

Why C is correct. It identifies the mechanism that fits the facts: reduced new-flat supply, longer waits, resale prices rising while growth is flat.

The other options.

  • A asserts a tracking relationship with growth that the facts contradict.
  • B treats resale prices as administratively set, which would make the observed movement impossible.
  • D dismisses the data rather than explaining it.

Exam note. When resale flat prices move against the general economy, look to new-flat supply before looking to macro conditions.

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