A single (standard) private residential market price index?

By The Folks @PropTalk - December 18, 2014 No Comments

There was an interesting article in the ST Forum today, where a call was made to adopt a single private property index with data that is complete, transparent, accurate and consistent. This is in view of the recent improvement announced for the HDB resale price index.

The wife and I agree with the views of the writer...to some extent. Yes, upgrading to a condominium is the "Singapore dream" of many Singaporeans. And yes, it is probably the most expensive item purchased in their lives. As such, potential buyers should make the most informed decisions before they put money on that private property. And there are definitely data on private property transactions published and reported regularly (with some available monthly) in Singapore. But is it really a good thing to adopt a single "standard" index for the private residential property market?

The wife and I must admit that we are not absolutely familiar with the mechanics of the various indexes that were mentioned in the article. But based on our limited understanding, there are notable differences in terms of how each of the index is derived.

The Singapore Residential Price Index (SRPI) complied by NUS, for example, is a transactions-based index that tracks the month-on-month price movements of private non-landed residential properties in Singapore. The index published is in the form of value-weighted indexes. The SRX Property Index (SPI), on the other hand, supposedly calculate price changes that take into account unique Singaporean factors such as the property's distance to a top primary school or an MRT station, in addition to standard index factors like location, age of property, size, floor levels and land tenure.

The URA non-landed residential property price index (PPI) are complied on a quarterly basis while the SRPI and SPI are derived monthly.

And the SRPI certainly did not claim to be more accurate than the others - they have stated in no unclear terms to being a complement to existing property information.

So yes, there are quite a few indexes for prospective buyers to refer... if they choose to. And yes, it can be confusing at times. But is it really a bad thing?

The wife and I believe that with more available sources, more in terms of knowledge/understanding can be gained from the data provided. We cannot comment on the conflicting price signals that the different indexes supposedly conveyed during the period of 2008 till now, as we do not track these closely. But if one index says that the private property market is up while another claims that it is down, it does set us thinking about why this is so and prompt us to find out the reason for such discrepancy. Having said that, we reckon that the indexes are likely to point the same way in most cases, albeit not in similar degree. And if we realize that most of the property indexes are generally pointing towards a downward trend (as per what is happening now), we can safely assume that the market is down and be guided accordingly.

But what if one index said that the market is down 1% this month while another calculated it to be 0.8%? The wife and I have never been too bothered by such differences. The actual index numbers do not typically feature in our calculation proper when we decide to buy - what the numbers mean (at least to us) is that the more it is down, the higher the probability that we can "press" the seller for a lower price. We deem it more important to research on actual transacted prices (e.g. caveats lodged with URA) and what the current asking prices are (e.g. adverts in property sites) to derive at our "ideal" price.

One other point that we do agree with is that lodging of caveats with the Singapore Land Authority should be made compulsory rather than voluntary. But with regard to the so-called "inflated prices"  due to stamp duty/cash rebates that are offered by developers and not captured in the data, which in turn served as a biased reference for valuation of similar properties and resulting in the risk of buyers taking bigger housing loans and servicing mortgages that are higher than the actual market values of their properties, the wife and I did an off-the-envelope calculation and reckon that these "incentives" are minuscule compared to the actual price of the property. So the question of how big an "inflation effect" these will have on property valuation remains.  

While the wife and I can certainly appreciate the good intention of the writer, we do not quite concur with her notion to adopt a single index for tracking the private residential market. And besides, Singapore is just one of many countries (USA, UK...just to name two) in the world where different organizations compile and distribute their own set of private home market index. 

So instead of focusing on the negatives of having different price indexes, we should all take better ownership over our decisions (not merely being spoon-fed) and do the necessary homework based on the diversity of data that's available out there. This is especially if it concerns one of the most important decisions in our lives...

But given that the wife and I are no experts, the above are just our humble opinions. And we be more than happy to agree to disagree as always...


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