THE IMPACT OF CONSTRUCTION QUALITY ON THE SINGAPORE CONDOMINIUM MARKET

Abstract

This paper examines the impact of construction quality on condominium prices in both the resale and presale market in Singapore. Construction quality is measured through the independent assessment of the workmanship under Construction Quality Assessment System (CONQUAS) where newly constructed residential projects are evaluated. With the CONQUAS scores not finalised during the presale stage, this paper firstly analyses the impact of construction quality on the resale market with respect to 1) the sale price, 2) whether a higher quality building is a safer investment asset and 3) the impact of improvement in quality on expectations and sale prices. Subsequently, the second part of this paper investigates if the premium for construction quality exists in the presale market through an estimation of a condominium's CONQUAS scores with reference to previous scores attained by the same developer. Lastly, the accuracy of the estimate of the construction quality is evaluated. A total of 47,516 resale and 66,096 presales transacted prices are obtained from the Real Estate Information System (REALIS) for 340 condominiums completed from 1999 to 2017. Through a hedonic price model regression analysis, the impact of construction quality on condominium prices controlling for hedonic attributes, spatial, time and developer fixed effects is evaluated. In the resale market, the results are statistically significant and showed that 1) a premium exists for construction quality, 2) a higher quality condominium is a safer investment asset and 3) the improvement in quality over the years has led to a reduction in the premium for quality in the latter years, possibly due to the increase in quality expectations of homebuyers. For the presale market, results showed that premium exists with higher average previou CONQUAS scores. Lastly, previous average scores and the actual scores are found to be highly correlated, suggesting that the predictability of actual scores is possible and highly accurate. Overall, this study fills up some research gap in understanding the impact of construction quality on the condominium market in Singapore.