Property and M2

Ms Teh Hooi Ling published an article in the Business Times on 29th Jan 2011, titled "How money grows in Singapore". In the article, she compiled the GDP, M2 money supply and Property Index for Singapore.

M2 money supply includes currency in active circulation, demand deposits of private sector, fixed deposits, savings and other deposits.

From the chart, it seems that property index follows the GDP pretty closely, other than 1997 period where it was well known to have a property bubble which subsequently burst.

Of course, this may not be the cause and effect, but it does make sense that property pricing goes hand in hand with GDP, which goes hand in hand with M2. If this correlation is strong, then the existing property prices seems to be fair, and likely sustainable.