Computation behind HDB Resale Price Index to be tweaked

SINGAPORE — To better capture price movements of flats in the newer towns and the varying age profiles of units across the island, the Housing and Development Board (HDB) will revise how the Resale Price Index (RPI) is computed.

The revision is also driven by the fact that there is a wider range of flats on the market, differing in terms of designs and attributes. 

Writing on his blog yesterday, National Development Minister Khaw Boon Wan announced that the HDB had recently completed a review and shared the reasons the authorities had re-examined the methodology, which was last tweaked more than 12 years ago.

“With 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,” said Mr Khaw. 

“This will allow the index to continue serving its purpose of providing timely and reliable information on resale market movements.”

He added that the HDB had been working on the review with a consultant from the National University of Singapore’s Department of Real Estate. More details will be announced soon. 

Noting that the RPI must reflect the prevailing HDB resale market in order to be effective and representative, Mr Khaw said the market had evolved considerably. Among other things, the range of flats available on the market has widened. For example, newer flat models, including taller blocks, are increasingly being transacted in the resale market. The Government has also reintroduced three-room flats since 2004, after the current RPI was last revised in April 2002. 

He also pointed out that there are currently many more resale transactions for flats in newer towns such as Punggol, Sengkang and Sembawang. However, these towns are not included in the representative basket.

Unlike the past, the age profile of flats being transacted in the resale market varies to a greater extent. “Such variance must be taken into account in making price comparisons,” noted Mr Khaw.

Under the current methodology, the HDB takes the average resale flat prices for a representative basket, by flat types, models and region, based on actual resale flat transactions. The average resale flat prices for each segment are then aggregated to derive the index. Following the 2002 revision, weights are computed using 12-quarter moving average of transactions to minimise short-term fluctuations.

Property analysts  TODAY spoke to were split on the need to revise the RPI methodology.  Mr Colin Tan, director of research and consultancy at Suntec Real Estate, said the index was fine in its current form in reflecting broad price movements. “There are not many people questioning the RPI so, if you ask me, most people (are) generally okay with (it),” he added. 

However, PropNex Realty CEO Mohamed Ismail agreed that the current methodology does not take into consideration the changing landscape, and hence may not provide an accurate representation. 

ERA key executive officer Eugene Lim suggested having sub-indexes for various flat types and for units in mature and non-mature estates. This would make the index more reflective and clearer, he said. However, Mr Chris Koh, director of Chris International, felt a single index was sufficient, as buyers could get transacted prices of various flat types and in different locations from the HDB’s website. 

Mr Khaw noted that managing the property market was “both an art and a science: Projecting and ensuring a good match of supply and demand, while correctly sensing the mood, takes some skills and good luck”. He added: “The science part of the skills requires a good property price index.”