CONSTRUCTION OF AN INDUSTRIAL PROPERTY PRICE INDEX

Abstract

There is a lack of index construction methodologies especially in relation to industrial pricing in Singapore. The only publicly available price indices are those published by the Urban Redevelopment Authority (URA) which are on median price indices based on the fixed base weighted Laspeyres formula. This dissertation is the first of its kind in attempting to build an industrial price index for Singapore from the period 1990 to 1997 on an annual and quarterly basis. The industrial price index is constructed using the fixed based 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 accounts for the changing quality and characteristics of industrial properties over time. The different parameters that may influence the sale price of an industrial property are also tested for its significance. The hedonic regression based industrial price index is then compared to a mean and median price index built using the same sales database utilized for the hedonic index to observe the effect of changing quality and characteristics. The median price index shows a high level of correlation to the hedonic index but projected a higher price level. The mean price index shows great volatility compared to the hedonic index. The hedonic price index is also compared to the URA Industrial Property Price Index. Comparison between the Industrial Property Hedonic Price Index and the URA Industrial Property Price Index reveals that the rate of appreciation and price level of the latter (12.3%) is much higher than that projected by the Hedonic Price Index (8.4%) per annum islandwide. The results of this study also show that the parameters such as tenure and location are significant in influencing an industrial property's sale price. The objectives of this study are thus fulfilled as a more accurate price index is constructed and the significant parameters influencing the industrial property sale prices are determined.