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Closely watched HDB resale price index up for revision

URA is also reviewing the need to revise its private residential property price index

Mr Khaw said the HDB has been working with a consultant from the National University of Singapore's department of real estate to review the index computation methodology, and more details will be released soon.


THE Housing and Development Board (HDB) will soon reveal more details on a revised methodology to compute the HDB Resale Price Index (RPI).

The board has been working with a consultant from the National University of Singapore's Department of Real Estate to review the index methodology, Minister for National Development Khaw Boon Wan disclosed on Wednesday.

Separately, a spokeswoman from the Urban Redevelopment Authority (URA) told The Business Times that URA was reviewing the need to revise its private residential property price index (PPI).

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She added that URA's review would require more time because the PPI was more complex; this index covers both completed and uncompleted units, as well as a greater diversity of properties with huge variations in attributes such as unit size, land tenure and housing types.

In his blog post, Mr Khaw said of the RPI: "To be effective and representative, RPI must reflect the prevailing resale market."

Given how the HDB resale market has evolved in recent years, "the current RPI may not adequately reflect the resale market", he added.

He cited three key reasons for HDB's latest review of this index, which is published quarterly. The RPI was last revised in April 2002.

First, a wider range of flats are now increasingly being transacted in the resale market - varying in design and attributes, including newer flat models and taller blocks. The government also re-introduced three-room flats after 2004, after the RPI was last revised.

"Second, there are now a lot more resale transactions for flats in newer towns such as Punggol, Sengkang and Sembawang, but these towns are not included in the representative basket currently. In other words, the current RPI does not capture movements in resale flat prices in these towns."

Third, there is greater age variance among the resale flats being transacted and this must be taken into account when making price comparisons.

"It is therefore timely to review the RPI methodology to better capture price changes over time, and control for the variations in attributes of the resale flats transacted," Mr Khaw said.

It came as a surprise to many property consultants that the newer towns like Punggol, Sengkang and Sembawang have not been factored into the HDB RPI.

Century 21 Singapore chief executive officer Ku Swee Yong felt that it was "disappointing" to realise that buyers and sellers of projects in newer towns, after all, could not rely on the resale price index as an indication of price trends.

Other consultants suggested that the exclusion could be due to infrequent transactions in the newer towns, which would have made it challenging to account for them without skewing the index.

But DTZ South-east Asia chief operating officer Ong Choon Fah pointed out that, with more condominium projects being completed in the northern region, more HDB upgraders may be letting go of their HDB flats in the resale market, making it timely for the resale price index to factor in the newer towns there.

ERA Realty key executive officer Eugene Lim felt that instead of just having one resale price index to cover the 26 HDB housing estates, HDB could introduce sub-indices for different flat types or regions, in the same way the URA has done so for private residential PPI.

"This gives a clearer picture of the price movements in each sector," he said, adding that HDB could possibly slice out the sub-indices by mature estates, non-mature estates and new towns.

To construct the RPI, HDB currently computes the average resale flat prices for a representative basket across flat types, flat models and regions. Weights are assigned to each region and flat type based on past transacted values in relation to the overall market over the past 12 quarters.

While URA also uses this so-called "mix-adjustment" or stratification approach, it does not track a fixed basket and it stratifies housing units based on various key attributes.

For the third quarter, HDB's RPI dropped 1.7 per cent marking its fifth straight quarter of decline, while URA's PPI showed private residential prices dipping 0.7 per cent, its fourth straight quarter of decline.

JLL's head of South-east Asia research Chua Yang Liang noted that a timely review of the basket for tracking HDB resale flats is important because of changes in the market. Assigning index weights to regions and flat types makes sense because of the uneven spread of transactions arising from the uneven population density across Singapore.

Consultancies like JLL typically track a basket of properties and undertake valuation to determine capital values and rentals for the residential and commercial markets.