Revising the Resale Price Index

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In Singapore, property price movements are closely watched and commented upon. With more than 90% of Singaporeans being home owners, the state of the property market, especially the housing market, is of strong interest to all. This is particularly so in the HDB resale market. When resale prices shoot up continuously, buyers or potential buyers are anxious. When resale prices continue to moderate, the table is turned and sellers or potential sellers become nervous.

At one NTUC Dialogue, Secretary -General Lim Swee Say, in jest, asked me if I could create two housing markets in Singapore, a market for buyers where prices continue to fall, and a separate market for sellers where prices continue to rise. The audience had a good laugh!

Managing the property market is therefore both an art and a science: projecting and ensuring a good matching of supply and demand, while correctly sensing the mood takes some skills and good luck.

The science part of the skills requires a good property price index. For the HDB resale market, we currently have the Resale Price Index (RPI) which HDB publishes every quarter. The index gives a general sense of resale price movements and serves as a useful reference point for home buyers and sellers in their decision-making.picture2

To construct the RPI, HDB takes the average resale flat prices for a representative basket, by flat types, flat models and region, based on actual resale flat transactions. The average resale flat prices for each segment are then aggregated to derive the index.

To be effective and representative, RPI must reflect the prevailing resale market. In recent years, the HDB resale market has actually evolved considerably. First, we now see a wider range of flats, differing in designs and attributes. For example, newer flat models, including taller blocks, are increasingly being transacted in the resale market. We have also reintroduced 3-room flats since 2004, after the current 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, unlike the past, there is now greater variance in the age profile of flats being transacted in the resale market. Such variance must be taken into account in making price comparisons.

With these significant changes in the HDB resale market, the current RPI may not adequately reflect the resale market. 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. This will allow the index to continue serving its purpose of providing timely and reliable information on the resale market movements.

Indeed, HDB has been working with a consultant from the NUS Department of Real Estate to review the RPI computation methodology. The review has recently been completed. HDB will be sharing more details soon.

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