HDB resale price index to be revised

[reporter2]

http://www.straitstimes.com/archive/thursday/premium/top-the-news/story/hdb-resale-price-index-be-revised-20141204

HDB resale price index to be revised

Figures do not reflect changes in resale scene: Khaw

Published on Dec 4, 2014 12:58 AM

By Yeo Sam Jo


THE resale price index of public housing will soon be revised to better reflect the market's growing diversity.

This is because the current quarterly figures have failed to capture three changes in the Housing Board resale scene, said National Development Minister Khaw Boon Wan in a blog post yesterday.

First, more flat types and designs are available on the market now. These include taller blocks and three-room flats, which were reintroduced from 2004.

Second, there are more resale transactions in newer towns such as Punggol, Sengkang and Sembawang, but these are not included in the current resale price index (RPI).

Third, flats transacted in the market have a wider age range today, with a growing number of older flats.

"With these significant changes in the HDB resale market, the current RPI may not adequately reflect the resale market," said Mr Khaw. "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."

Now, the index is computed by taking the average resale flat prices for a representative basket, across different flat types, models and regions, based on actual transactions.

The average prices for each category are then aggregated to derive the index, which was last revised in 2002.

Mr Khaw said the HDB has been working with a consultant from the National University of Singapore's department of real estate to review the index computation methodology, and more details will be released soon.

Flat owners, buyers and property experts said that the change is a timely update that will provide more accurate information.

"This will help me better gauge the price to expect from my sale," said IT executive Govindaraj Kuppusamy, 45, who is selling his five-room flat in Sengkang.

PropNex Realty chief executive Mohamed Ismail Gafoor said it is important to include new towns like Sengkang and Punggol, as there have been plenty of transactions there.

Analysts suggested that the index could be divided into sub- indexes like mature and non-mature estates, akin to how the Urban Redevelopment Authority's private property index displays figures for three main regions.

"A more granular representation would be more relevant to HDB buyers and sellers," said Mr Mohamed Ismail.

ERA Realty key executive officer Eugene Lim agreed: "The price in a particular area might be trending differently from the island-wide index, which is currently not segmented."

But Century21 chief executive Ku Swee Yong cautioned against relying too heavily on the index.

He said: "(It) is a general aggregate of the whole country's price trend. Buyers and sellers of specific properties should work closely with a trustworthy agent and consult with property valuers before signing their contracts."

[email protected]

[reporter2]

http://www.businesstimes.com.sg/real-estate/closely-watched-hdb-resale-price-index-up-for-revision

Closely watched HDB resale price index up for revision

URA is also reviewing the need to revise its private residential property price index

By Lynette Khoo

[email protected]@LynetteKhooBT

4 Dec


THE Housing and Development Board (HDB) will soon reveal more details on a revised methodology to compute the HDB Resale Price Index (RPI).

The board has been working with a consultant from the National University of Singapore's Department of Real Estate to review the index methodology, Minister for National Development Khaw Boon Wan disclosed on Wednesday.

Separately, a spokeswoman from the Urban Redevelopment Authority (URA) told The Business Times that URA was reviewing the need to revise its private residential property price index (PPI).

She added that URA's review would require more time because the PPI was more complex; this index covers both completed and uncompleted units, as well as a greater diversity of properties with huge variations in attributes such as unit size, land tenure and housing types.

In his blog post, Mr Khaw said of the RPI: "To be effective and representative, RPI must reflect the prevailing resale market."

Given how the HDB resale market has evolved in recent years, "the current RPI may not adequately reflect the resale market", he added.

He cited three key reasons for HDB's latest review of this index, which is published quarterly. The RPI was last revised in April 2002.

First, a wider range of flats are now increasingly being transacted in the resale market - varying in design and attributes, including newer flat models and taller blocks. The government also re-introduced three-room flats after 2004, after the RPI was last revised.

"Second, there are now a lot more resale transactions for flats in newer towns such as Punggol, Sengkang and Sembawang, but these towns are not included in the representative basket currently. In other words, the current RPI does not capture movements in resale flat prices in these towns."

Third, there is greater age variance among the resale flats being transacted and this must be taken into account when making price comparisons.

"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," Mr Khaw said.

It came as a surprise to many property consultants that the newer towns like Punggol, Sengkang and Sembawang have not been factored into the HDB RPI.

Century 21 Singapore chief executive officer Ku Swee Yong felt that it was "disappointing" to realise that buyers and sellers of projects in newer towns, after all, could not rely on the resale price index as an indication of price trends.

Other consultants suggested that the exclusion could be due to infrequent transactions in the newer towns, which would have made it challenging to account for them without skewing the index.

But DTZ South-east Asia chief operating officer Ong Choon Fah pointed out that, with more condominium projects being completed in the northern region, more HDB upgraders may be letting go of their HDB flats in the resale market, making it timely for the resale price index to factor in the newer towns there.

ERA Realty key executive officer Eugene Lim felt that instead of just having one resale price index to cover the 26 HDB housing estates, HDB could introduce sub-indices for different flat types or regions, in the same way the URA has done so for private residential PPI.

"This gives a clearer picture of the price movements in each sector," he said, adding that HDB could possibly slice out the sub-indices by mature estates, non-mature estates and new towns.

To construct the RPI, HDB currently computes the average resale flat prices for a representative basket across flat types, flat models and regions. Weights are assigned to each region and flat type based on past transacted values in relation to the overall market over the past 12 quarters.

While URA also uses this so-called "mix-adjustment" or stratification approach, it does not track a fixed basket and it stratifies housing units based on various key attributes.

For the third quarter, HDB's RPI dropped 1.7 per cent marking its fifth straight quarter of decline, while URA's PPI showed private residential prices dipping 0.7 per cent, its fourth straight quarter of decline.

JLL's head of South-east Asia research Chua Yang Liang noted that a timely review of the basket for tracking HDB resale flats is important because of changes in the market. Assigning index weights to regions and flat types makes sense because of the uneven spread of transactions arising from the uneven population density across Singapore.

Consultancies like JLL typically track a basket of properties and undertake valuation to determine capital values and rentals for the residential and commercial markets.

[reporter2]

http://www.businesstimes.com.sg/real-estate/hdb-gives-its-resale-price-index-more-oomph

HDB gives its resale price index more oomph

By Lynette Khoo

[email protected]@LynetteKhooBT

10 Dec


IN a push to make property indices more reflective of market changes, the Housing & Development Board (HDB) - the first among official agencies here to change the way it computes its price index - has unveiled details on how its revised approach will be more comprehensive and robust. (see infographic)

HDB said on Tuesday that it was expanding the coverage of its resale price index (RPI) to all towns and flat models, having excluded 12 towns in the past. It is also adopting a new method to compute the RPI called the "stratified hedonic regression" method, which it says is better able to screen out "noises" in measuring price changes.

Other government agencies that track property prices, namely the Urban Redevelopment Authority (URA) and JTC, could soon be making changes to their respective property price indices too.

A JTC spokeswoman told BT that it is working on a revised method to compute its industrial price and rental indices to "better reflect market trends" and will reveal more details next month. URA disclosed last week that it was reviewing the need to revise its private residential property price index (PPI). Some market watchers believe that URA is also reviewing price indices for commercial properties.

HDB's move to change its computation of the quarterly RPI is itself a response to significant market changes that have taken place since the last revision in 2002. In recent years, a wider range of flats have been transacted, more resales took place in newer towns and there is now greater age variance across resale flats, Minister for National Development Khaw Boon Wan has flagged.

Starting from the fourth quarter, HDB will include all towns and flat models in the RPI. It had previously excluded newer towns such as Sengkang, Punggol and Sembawang.

Market watchers were, however, surprised yesterday that even popular towns such as Bishan, Queenstown, Marine Parade and Clementi were previously excluded in the RPI.

"Obviously, including all the towns will provide a fairer and better representation of HDB resale market," said PropNex chief executive Mohamed Ismail.

Mature estates such as Bishan, Queenstown and Marine Parade tend to have greater demand, fetching the highest cash-over-valuations in the past, he pointed out. A few HDB executive maisonettes were transacted at a record S$1 million in Bishan and Queenstown.

According to HDB, the 12 excluded towns made up less than 30 per cent of all resale transactions in recent years; market watchers felt however that this is significant especially when market volumes come down.

But a back-testing of the new approach by HDB found no deviation in the overall price trend compared to the previous method, though resale prices would have fallen more over the past three quarters based on the revised approach. In the third quarter, the revised RPI would have fallen 1.8 per cent, compared to 1.7 per cent using the older approach.

Property consultants believe that this is due to newer towns being included, as they typically face weaker demand. Now, even the popular towns such as Bishan where flats are more pricey have been hit by the lending curb on home buyers, Mr Ismail said.

To compute the index, HDB is switching to "stratified hedonic regression", which it says allows for quality control at the broader level compared to the current "stratification" method. As a general principle, housing units are heterogeneous; to measure actual price changes over time, their quality differences have to be controlled to make fair "apple- to-apple" comparisons.

Previously, HDB sorted resale transactions by flat types, models and regions and derived the index by aggregating the average prices of the segments, each weighted based on a 12-quarter moving average of transaction volumes. But this means that within each segment, effects on price changes due to differences in flat attributes, such as age and floor level, were not stripped out.

The new method sorts resale transactions by flat types (three-room, four-room etc) and computes their average price changes over time using regression analysis. These price changes are then aggregated using fixed weights (based on five quarters of transacted values) to get the overall index. This hedonic regression is able to control for the differences in housing attributes such as location, proximity to facilities or amenities, age or floor level. Even factors such as distance to MRT stations and primary schools are accounted for.

To avoid user confusion, past values of the resale price index will not be re-calculated using the new method, HDB said. But the RPI's base period will be changed from Q4 1998 to Q1 2009, the index's most recent trough.

ERA Realty key executive officer Eugene Lim noted that for the academics and analysts, this revised index will be a more accurate representation of the market, "just like water has been made more pure".

"But to the layman, it does not really make a difference," he said. "They will look at the index for the general market direction. For pricing indication, most of them will be looking at the recent transaction information that HDB publishes on its website, which is more relevant when it comes to pricing a flat to be sold or making an offer on a flat to be purchased."

Century 21 Singapore CEO Ku Swee Yong felt, however, that home buyers in towns such as Bishan and Marine Parade might have felt that they were making decisions on data that was not complete. "We need at least next five quarters to see if the revised index is good and reflecting market situation," he said.

Some property consultants have hoped to see sub-indices for mature and non-mature HDB estates, similar to how URA slices sub-indices for different regions.

HDB explained that for simplicity, it publishes one composite price index. "There are individual flat transactions publicised daily in the HDB InfoWEB to give a good sense of the current prices," it said.

A team from HDB have worked on the index review over the past one year with a consultant from NUS Department of Real Estate, associate professor Lum Sau Kim. She had earlier led the launch of the NUS Singapore Residential Price Index that also uses hedonic regression.

Globally, many private and official agencies have started reviewing their property price indices amid efforts by Eurostat, the statistical office of the European Union, to harmonise official house price indices across jurisdictions.

The hedonic regression method has increasingly been used to compute national level indices, with France, Finland and Japan among countries that have adopted this method. Official statistical agencies in Australia and the UK are also developing such indices.