Quantifying the economic benefits of climate adaptation in real estate
Climate risks such as sea level rise erode property values. A study by Agarwal, Qin, Sing and Zhan (2025) found that adaptation measures attenuated the loss of value, translating into economic benefits amounting to approximately S$28bn in Singapore's public housing market.
Wong Wei Chen
21 January 2025
As environmental warming persists, global sea level rise (SLR) is accelerating. From an average of 1.4mm per year in the 20th century, the rate has more than doubled to 3.6mm per year from 2006 – 2015, according to a report by NOAA Climate.gov. The Inter-governmental Panel on Climate Change (IPCC) in fact predicts global mean sea level rise to range between 0.43m and 0.84m by 2100 relative to the level in 1986 – 2005.
Apart from hurricanes, flash floods and other disasters triggered by swelling waters, the most obvious risk is the loss of habitable land and the destruction of infrastructure. As a low-lying island with 30% of total land less than 5m above sea level, Singapore's coastlines would be eroded should SLR continue on its current trajectory.
In his 2019 National Day Rally speech, Singapore's former prime minister Lee Hsien Loong thus warned that property values, safety and liveability would be affected. On that occasion, he also revealed a topography map highlighting areas most vulnerable to SLR risks.
Mr Lee added that the Government would invest approximately S$100 billion (possibly more if required) over the upcoming 100 years to tackle this risk – via protective infrastructure such as sea walls, pump houses and other measures – with specific mention of the City-East Coast area and Jurong Island.
In their study “Sea level rise risks, adaptation strategies, and real estate prices in Singapore” Agarwal, Qin, Sing and Zhan (2025) investigate how Mr Lee's announcement impacted home prices in areas vulnerable to the impending inundation.
Empirical design
Mr Lee's announcement was broadcast nationwide through national TV channels, radio stations and online platforms, including the Prime Minister's Office's (PMO) YouTube channel and his own Facebook page, which has 1.7 million followers.
Given the wide reach of the National Day Rally, Mr Lee’s message thus represented an exogenous information shock on the property market at large, which in turn allowed the researchers to deploy a difference-in-differences (DID) approach to study the influence of this shock on property prices – defined as the logarithm of price per square metre in the context of the study.
Using geospatial information system (GIS) technology, Agarwal et al. reproduced digital versions of Mr Lee's original topography map, and then used coordinates to identify home transactions that were within SLR areas and those that were not. (See Figure 1 for illustration.)
Transactions in SLR areas formed the treatment group, while those outside SLR areas but within a 2 km radius of the treated properties formed the control group.
Landed properties were excluded due to their small share in Singapore’s housing stock, as were BTO flats, since these flats and their pricing were regulated by the Housing & Development Board (HDB). The study thus focused on non-landed private apartments (including 99-year, 999-year and freehold private properties), and resale HDB flats – which were all 99-year leasehold by regulation.
Agarwal et al. also established that there were no pre-existing “unparallel pre-trends” – which would suggest that the market had already factored in the SLR risk prior to Mr Lee’s announcement. This rendered further support to deploy a DID analysis to investigate a novel shock on pre-existing property-market dynamics.
Controls were made for property attributes (e.g., flat age, tenure type, floor level etc.), year-month-flat type fixed effects and postal code fixed effects. The impact of property cooling measures, implemented between July 2018 and April 2023, were also factored into the analysis.
Using Q1 2016 as the benchmark, transactions over 32 quarters (the "sample period"), stretching up to the end of 2023, were included as observations.
Apart from Jurong Island, which does not have residential real estate, the City-East Coast area was the other region specifically highlighted to receive adaptation measures. Therefore, SLR transactions within the City-East Coast area made up a subgroup within the baseline treatment group. The control group against which this subgroup was benchmarked was similarly defined as non-SLR transactions within a 2 km radius.
Findings
Baseline regression analysis (i.e. islandwide sample, including the City-East Coast subgroup) revealed that, post-shock, resale HDB prices in SLR areas went on a downward trajectory, and slid by as much as 7.2% four years after the announcement. On the overall, an SLR property was on average discounted by 4.6% compared to its non-SLR counterpart.
The researchers next analysed the subgroup of SLR transactions slated for adaptation measures, i.e. SLR transactions within the City-East Coast area. As anticipated, this subgroup was discounted to a smaller extent. Resale HDB prices remained on a relatively flatter trajectory, recording a 0.6% decline relative to the control group at the end of the 4-year period. Treatment properties in this subgroup were discounted by only 1.0% compared to their counterparts in the control group. Government commitment to protect infrastructure had attenuated the value loss of properties under SLR risks.
On the whole, private property appeared to be more resilient against loss of value when compared to public housing. Private property prices, on average, dipped only by 1.2% in SLR areas in general, and by 1.0 % in adapted SLR areas relative to their counterparts in the control group.
Interestingly, within the sample of private properties, the study found that private freehold residences did not exhibit any statistically significant change in prices following the announcement, while leasehold private property prices, on the other hand, dropped by 1.9% in SLR areas and 1.6% in SLR-with-adaptation areas, and both figures were higher than the overall private-property averages of 1.2% and 1.0% mentioned earlier.
Through a series of robustness tests – e.g. varying the 2-km buffer zone and injecting heterogeneity such as high floor vs low floor into regression analyses – patterns similar to the baseline regression were observed. Prices of SLR transactions softened after the announcement, with private homes showing greater resilience against value loss.
Additionally, a corollary was that the rental market would be indifferent to the SLR announcement, since tenants do not have a long-term stake in their residences. Regression analysis discovered that rents in SLR regions displayed no statistically significant changes pre- and post-announcement.
Possible explanations for resilience in private freehold property
Why did HDB and leasehold private properties in SLR zones respond negatively to the announcement shock, whereas private freehold properties in the same areas remained unaffected?
Agarwal et al. explained the phenomenon via the En Bloc mechanism. In Singapore, private homeowners can collectively sell their properties through the En Bloc scheme after obtaining the majority consent, which is 80% for properties that are 10 years and older, or 90% for newer ones.
After obtaining the requisite consent, the En Bloc process can be initiated. This involves conducting a public tender, where developers submit bids to purchase the entire property for redevelopment. Successful developers acquire the property, and the owners receive significant proceeds from the sale, often sufficient to purchase a new residence.
Through analysis of historical data, the researchers found that freehold private properties had nearly 10 times larger En Bloc potential than their leasehold counterparts. The En Bloc process is not applicable for HDB flats, either new or resale, as renewal for public housing is done via government programmes such as the Selective En Bloc Redevelopment Scheme (SERS).
These findings suggest that freehold property owners had a vested interest in keeping property values high so as to command attractive En Bloc sales prices later.
Economic implications
Based on back-of-the-envelope calculations, Agarwal et al. estimated that the Government’s commitment to SLR adaptation may have mitigated approximately S$28 billion of property value losses in the public housing market.
Beyond property values, adaptation efforts would also entail job and business creation, leading to broader socioeconomic benefits.
Contribution to the literature
Earlier studies that investigated the relationship between climate change and house prices had to rely on circumstantial information such as inundation forecasts by NOAA and FEMA, as well as then-available elevation and tidal information.
The relative inaccessibility of such information raises concerns over whether the average homebuyer and seller actually factor these concerns into their pricing and decision-making. In other words, do market participants know about SLR risks, and do they even entertain such considerations while transacting? Such epistemological issues pose a challenge to the validity of findings.
Agarwal et al.'s study enjoys the advantage of having a government announcement made to the population at large via various mass media channels. The efficiency in information transmission and the exogenous nature of the announcement supports a robust DID approach, which in turn makes a strong case for the validity of research findings.
Agarwal, Sumit is the Low Tuck Kwong Distinguished Professor at the School of Business and Professor in the departments of Economics, Finance and Real Estate at the National University of Singapore.
Qin, Yu is an associate professor at the Department of Real Estate, NUS Business School, National University of Singapore.
Sing, Tien Foo is the Provost's Chair Professor at the Department of Real Estate, Business School, National University of Singapore.
Zhan, Changwei is an assistant professor at the Department of Real Estate and Construction, University of Hong Kong.