A constant-quality price index for resale public housing flats in Singapore

Largely because of the significant societal and economic aspects of public housing in Singapore, the current resale price index is published regularly by the Housing and Development Board (HDB). Based on average transaction prices, this HDB index does not control for a shift in the mix of public housing resale flats transacted. This paper looks into the usefulness of the current HDB resale price index that is reflective of pure price appreciation across time. Adopting the varying parameter technique, a constant-quality HDB resale price index is constructed instead for the period between January 1997 and June 2000. The usefulness of a constant-quality resale price index is evaluated using three assessment criteria. First, through a series of comparative studies between a constant-quality HDB resale price index and other resale price indices, it is found that the constant-quality resale price index provides a better indication of pure price appreciation. Secondly, the parameters of price determinants are found to be unstable across distinct phases of the market cycle. During market recovery, greater premiums are generally attainable for better-quality flats due to positive market sentiment and improved economic conditions. Nevertheless, greater discounts are also generally attainable for lower-quality flats due to greater expectation attributable to rising resale prices. This implies that owners of better-quality flats would probably be better motivated to put up their units for sale during a market recovery. Thirdly, the difference in the values of price determinants during different phases of the market cycle suggests that the varying parameter techniques should be appropriate for the construction of a constant-quality HDB resale price index.