HDB resale index revamp to better reflect market
THE way the Housing Board resale price index (RPI) is calculated will undergo a total revamp to give a better reading of the resale market here.
The new methodology takes into account more characteristics of the flat in the calculation of the market's general price movements.
Details were released yesterday after National Development Minister Khaw Boon Wan announced last week that a review of the index had been completed.
He noted then that the existing method "may not adequately reflect the resale market", which now sees more varied flats and more transactions in newer towns since it was last revised in 2002.
"It is therefore timely to review the RPI methodology to better capture price changes over time, and control for the variations in attributes of the resale flats transacted," he said.
Currently, the resale market is divided into segments by flat type and region, such as three-room flats in the north or a four-room flat in the west. Average prices are calculated for each segment, and then aggregated to derive the overall index.
The new method sorts the market by flat type, such as three-room, four-room and five-room. It uses a technical method called hedonic regression to strip out the effect of flat attributes on its price.
Attributes such as where the flat is situated, whether it is near an MRT station, on the second or 24th floor, can significantly alter the price of the unit.
When these are stripped out, what remains are "pure price changes", which reflect the market more accurately, said Lum Sau Kim from the National University of Singapore's Department of Real Estate, who was a consultant in the review.
When HDB tested the new method on this year's data, it showed the same downward trend, though with slightly larger falls.
PropNex Realty chief executive Mohamed Ismail expects the new index to fall further in the coming quarters, compared with the current version, due to the inclusion of new estates such as Sengkang, where demand is weaker.
Past values of the resale price index will not be re-calculated.
But the index will adopt a new base period of the first quarter of 2009, instead of the existing fourth quarter of 1998. This does not affect any of the percentage changes over time.
The new method will be used starting from the next release of quarterly figures on Jan 2.
"For academics and analysts, this is a more accurate representation of market direction," said ERA Realty key executive officer Eugene Lim.
But it will not make much difference to laymen, for whom specific recent transactions - which HDB publishes on its website - are more relevant, he added.