THE ROLE OF THE LIST PRICE IN HOUSING MARKETS : THEORY AND AN ECONOMETRIC MODEL

Abstract

This academic exercise is concerned with the role of list price in the housing market. Specifically, the nature of the study has been confined to divulge the role of the list price in the resale housing market, for the public housing in Singapore; which is the HDB valuation price. In the public housing scene, HDB resale flats have been incessantly sold at prices above, and almost never at prices below, the list price. As such, it appears to be the floor price, that hinders the transacted resale price from sliding beneath. This behavior is peculiar to the HDB resale market, and especially since 1993, when the new policy - requiring compulsory valuation to be done through the Board - was introduced. The study on the indispensable role of the list price in the HDB resale market, has been based on two related views, which have provided theoretical underpinnings for the econometric model. First, there exits interconnections between the list price of the HDB resale market and the major HDB resale policies. Second, being a valuation price, it is likely to capture the unobservable and other ambiguous attributes of the dwelling, that are either overlooked or difficult to quantify. In addition, this academic exercise also presents the theory of the Bedonie Approach, for determining the HDB resale price; and elucidates that, the modification of the aforementioned approach - by incorporating the list price - the HDB resale price can be determined with improved precision. Next, the theory on the role of list price in the HDB resale market, has been analyzed empirically by means of the Hedonic Approach and the Modified Approach (a modification of the prior approach). The empirical observations have revealed that : the estimated regression model that predicts HDB resale price, conditional on the list price of HDB resale market, and the observed attributes of the flat plus its neighborhood, has produced improved outcomes than the traditional Hedonic Model. This has confirmed upon the theoretical aspects on the interconnections between the list price of the HOB resale market and the resale price, as well as capturing the unobservable attributes. Through these two related subjects, this academic exercise has portrayed both theoretically and empirically, that there exist no doubt in the role of the list price, or, the HOB valuation price, in determining the HDB resale price, based on the empirical findings. Any discussion of the determination of HDB resale price, without due consideration for the list price of HDB resale market, would be misguided, so long as the HDB resale structure and its rulings remain intact