Effects of new computation for HDB Resale Price Index to be seen next January

The Housing and Development Board (HDB) will calculate its Resale Price Index (RPI) using a new methodology on its flash estimates of the fourth quarter of 2014, which are expected to be released in January next year.

The RPI provides the general price trend of resale HDB flats, and was last revised in 2002.

Presently, the index is calculated using transactions which are grouped according to flat types, flat models and locations.

The average prices for each group are worked out using 12-quarter moving average weights to derive the index. This may lead to an inaccurate reflection of price changes.

For instance, flats on lower floors typically command a lower resale price, and if more of such flats are sold in a certain quarter, overall resale prices may appear to have fallen.

With the revision, the RPI will be calculated using a methodology that captures price movements in all HDB towns, including newer towns which had previously been excluded from the computation, such as Punggol, Sengkang and Sembawang. There were no resale transactions in these three towns in 2001, prior to the previous revision of the index.

Currently, the resale volume in these three towns constitutes about 10 per cent of all resale transactions, HDB said.

MORE INCLUSIVE INDEX

Additionally, only representative towns are covered in the current RPI, and it is calculated using transactions registered across flat types, flat models and region.

With the new methodology, more flat attributes – like storey height, age of unit and proximity to amenities such as train stations and shopping centres – will be taken into account when computing the index.

The revision aims to better reflect an “increasing variety of resale HDB flats with differing designs, new locations and greater variance in age profile”, said the HDB, adding that price movements in the revised index are close to those in the current one.

For instance, the current indices for 1Q2014, 2Q2014 and 3Q2014 are at -1.6 per cent, -1.4 per cent and -1.7 per cent respectively. Under the revised index, the figures will be at -1.9 per cent, -1.5 per cent and -1.8 per cent respectively.

HDB stressed that while the back-testing showed a bigger drop in the revised RPI as compared to the current index, this “need not be so all the time”.

“The difference between the current and revised RPI is due to the change in methodology and the inclusion of resale transactions in more towns,” it stated. “The difference could be positive or negative depending on the period considered.”

The revised RPI will continue to cover flat models of three-room, four-room, five-room and executive flats. It will not include one-room and two-room flat-types due to the low volume of resale transactions.

HDB said countries which calculate price indices using the same methodology that HDB is switching to include Finland, France and Japan. Official statistical agencies in Australia and the UK are also developing such indices, it added.