Implications behind the improved URA Property Price Index

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By Property Soul

If you have a good memory, you may still recall that I have written to The Straits Times Forum in December last year on “Public deserves reliable, consistent data”.

In URA’s reply, they mentioned about working towards making improvements to the property market data and will release the nett prices of individual units sold by developers on their website in the first half of 2015.

On April Fool’s Day, URA finally announced that they have improved the computation methodology of their PPI (Property Price Index) to better reflect price changes in private residential market. This is first reflected in the release of the flash estimate for 1st Quarter 2015. The announcement is also reported in TODAY’s article “Analysts welcome URA’s new method to track private property prices” published on April 2.

Six changes in the new PPI

According to URA’s press release on 1 April 2015, the long-awaited PPI revision (since their last revision in year 2000) covers six major changes:

1. Property Attributes

Besides location, tenure, property type and completion status, PPI will now take into considerations property attributes (e.g. size, age) and micro-location (e.g. proximity to MRT station).

2. Tracking Methodology

To account for differences in housing characteristics, from now on, PPI is calculated based on the Stratified Hedonic Regression Method instead of the previous Stratification Method.

3. Weighting Average

The usual 12-quarter moving average weights now become 5-quarter fixed weights.

4. Base Year

Base period has been changed from 4Q1998 to 1Q2009.

5. Data Source

Apart from caveats lodged and new units sold by developers, data sources now include stamp duty transactions from the Inland Revenue Authority of Singapore.

6. Price Indices

URA will show price trends on a broad rather than micro or localized level. From 1st Quarter 2015, only the following property price indices will be published:

– Residential Properties

– Landed Residential Properties

– Non-Landed Residential Properties

– Non-Landed Residential Properties in Core Central Region, Rest of Central Region and Outside Central Region

If one compares these PPIs with the previous indices, sub-categories like completion status (completed vs uncompleted) and property type (Apartment, Condominium, Detached, Semi-detached and Terrace) have not been mentioned. The picture will be clearer when the full set of 1Q2015 price indices are out in 4 weeks’ time.

Implications behind the changes

What are the implications for the improvement of URA’s PPI?

1. More comprehensive coverage and higher representation

In the past, only data from Singapore Land Authority are accounted, even though lodging caveats with SLA is only based on voluntary submission. Furthermore, survey data on new units sold for uncompleted projects rely on honest contributions by property developers.

Since buyers of all new property sales have to pay buyer stamp duty, it should now be able to capture all private housing transactions. The expanded data collection sources to cover stamp duty payments are definitely much more representative in showing the real picture.

2. More meaningful comparisons among projects

Property prices of various projects, though under the same district, can differ significantly depending on their actual location, age of the property, etc. With the addition of more property attributes like micro-location and size or age of the transacted unit, the public are able to make more meaningful comparisons of the pricing data.

3. Increased difficulty to compare with past data

With the base period 4Q1998 shifted to 1Q2009, and 12-quarter moving average weights changed to 5-quarter fixed weights, the PPI now put more emphasis on price comparisons for the last few years rather than over the past decades.

With the changes in tracking methodology, it is now increasingly difficult to make apple-to-apple comparisons with the old set of PPIs.

What’s next?

URA’s written reply on Dec 23, 2014 has promised the release of the nett prices of individual units sold by developers in the first half of next year.

The public are looking forward to see the actual transacted prices of units bought directly from developers, less all the absorption, subsidies, rebates and incentives offered by the latter.

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