THE BUILDING OF A RESIDENTIAL LAND PRICE INDEX

Abstract

There is a lack of research on index construction methodologies especially in relation to land pricing indices in Singapore. The only publicly available price indices are those published by the Urban Redevelopment Authority (URA) on built-up properties which are median price indices based on the fixed base weighted Laspeyres formula. This dissertation is the first of its kind in attempting to build a land price index for residential land in Singapore from the period 1987 to the 2nd quarter of 1995 on an annual and quarterly basis. The index is then compared to the URA's built-up residential property price indices to see the relationship in the movement of pure land prices and that of the same type of built-up properties. The land price index is constructed using the fixed base Laspeyres method of index construction with median and mean transaction prices as well as a hedonic regression based model. The proposed transaction based hedonic index controls for the changing quality and characteristics of land transacted over time. The hedonic regression based land price index is compared to a median and mean price index built using the same sales database utilised for the hedonic index to observe the effect of changing quality and characteristics. The median price index shows greater volatility with steeper increases and declines in value than the hedonic index. The mean price index shows even greater degrees of fluctuations than the median price index. The hedonic and median price indices are also compared to the URA Residential Property Price Index. Comparison between the Residential Land Hedonic Price Index and the URA Residential Property Price Index reveals that the capital appreciation rate of pure residential land is much higher than that for built-up properties with 30.1% per annum versus 15.49% per annum islandwide. The hedonic model indicate that the influence of tenure, land area and plot ratio on the value of land is significant. Sub-market land price indices for the Central, East and North-East Planning Regions are also constructed using the hedonic regression based index and the median price based index. Land price index for the Western Planning Region is not constructed due to insufficient sales. Comparison of the hedonic and median price indices for each of the sub-markets show that the median price index does not account for change in the characteristics of the land transacted in each period. Hence in years when the number of leasehold properties sold increased the disparity between the median price and the hedonic based index increases. Comparison of the sub-market hedonic land price indices to that of the corresponding URA Residential Property Price Index show that the rate of appreciation for each of the sub-markets is higher than those of the respective built-up properties, the disparity is greatest for the eastern sub-market with an average rate of appreciation of 39.55% per annum versus 20.28% per annum for built-up properties. This could be due to the influence of the 1991 Revised Concept Plan which envisages the eastern region as a good class residential and recreation belt.