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Keywords: Real Estate
Tu Yong
2007/2008 RE
Issue Date: 17-Jul-2017
Abstract: The property price index is an indicator of the property market and is often relied on for making decision for policy maker and investors. Since there is no definite solution on the best methodology for price indexation, the comparison of the various methodologies will be a good step to explore the advantages and constraints, which will be useful for people adopting these methodologies and also to caution user of the indexes on the potential error. The key objective of the study is to identify the problem of the non-quality controlled URA index, which is the official property price index in Singapore and compare it with the quality-controlled hedonic indexes that is believed to be able to provide a more precise estimation of price changes. The study will also verify if there is sign of change in importance placed on the price attributes and how it will affect the overall price indicator. As it is understood that the difference in basis will affect the price indicator, this study will therefore examine on what is the implication when the price index is based on a specified quarter of the year compare to when it is allowed to be always based on the current quarter. At the end of the research, the study aims to recommend an appropriate hedonic approach for condominium price indexation in Singapore since the current official URA index is seemed to be deficient. There are a total of 88 regressions conducted using the different models to derive at the various hedonic price indexes and the results from the regressions have shown that the floor area, storey level, tenure structure and the presence of gym and squash court facilities are positively related to price while the age of development and distance to CBD are found to be negatively related to price. In general for ranking of the price attributes in term of importance, the floor area is found to be the most important, followed by the tenure structure, the distance to CBD, the age of condominium and the storey level of the condominium unit in decreasing order and the presense of facilities like the gym and squash court is found to be least important. However the position of the ranking is seen to be changing across periods especially for the less important price attributes.The study had found out that the non-quality controlled URA index had projected a more optimistic property market between the periods from 1995 to 2005, which the average price change is only at -0.13% and moreover, it had also understated the potential risk of the market given the standard deviation of 0.047, which both are lower than all the constructed hedonic price indexes and the reason could be that the URA index is not controlled for quality and thus did not reflect the true price change. Moreover as the URA index did not restrict the transaction records within the specific condominium developments and is inclusive of any transactions from new condominium development, it can be seen that the upward bias of the index is increasing through time especially after 1st quarter 2000. In general, the URA index is able to reflect similar property cycle as the constructed indexes in the long term but is not a good mean to estimate property return. The study also found out that although the results from the regressions conducted using the various models had indicated change in importance placed on price attributes, there is no significant impact on the overall price indicator because the indexes constructed using the constant parameter method and the time-varying parameter methods is rather identical especially for the conventional hedonic index and the chain link index. Lastly, it is found that the use of different basis will lead to understate or overstate of the property price indicator, which the Laspeyres index that based on mean average of the price attributes at the 1st quarter 1995 is seen to have overstate the property price while the Paasche index that based on the mean average at present quarter is found to have understate the property price. A correction model, which is the Fisher Ideal method is adopted to remove the biasness found in the Laspeyres and Paasche index and although the newly corrected Fisher Ideal index managed to correct the biasness, it is found that the index is not as precise as the direct derived hedonic indexes like the conventional hedonic index and the chain link index for estimation of price change for condominium in Singapore. The study had shown that the most appropriate hedonic method for constructing price index for the condominium in Singapore is the hedonic chain link method.
Appears in Collections:Bachelor's Theses

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