CONSTANT-QUALITY HDB RESALE PRICE INDEX

Abstract

Public housing has significant societal and economic implications as well as huge potential in the capital market. The current resale price index released by Housing and Development Board (HDB), based on average transaction prices, does not control for the shift in mix of resale flat transacted. This study attempts to investigate the usefulness of the released resale price index as an indication of price appreciation. Adopting the varying parameter technique, a constant-quality resale price index is constructed for the period between January 1997 and June 2000. The usefulness of the constant-quality resale price index is evaluated using three assessment criteria. Through a series of comparison studies between the constant-quality resale price index and other resale price indices, it is found that the constant-quality resale price index would probably provide better indications on pure price appreciation. In addition, the parameters of price determinants are found to be unstable across distinct periods of market cycle. During the recovery market, greater premiums are generally attainable for better-quality flats due to the positive market sentiment and improved economic condition. On the other hand, greater discounts are also generally given for lowerquality flats due to greater expectation arising from increased resale prices. This implies that owners of better-quality flats would probably be better motivated to put up their units for sale during a recovery market. In addition, the difference in the values of price determinants during different phases of market cycle suggests that varying parameter techniques are necessary for the construction of resale price index.