URA reviewing key index of private home prices

It is doing study to look at other methods, test robustness of its index

A key indicator of private home prices is being reviewed to ensure that it continues to accurately reflect values in Singapore.

The study, which The Straits Times understands began last year, could involve revising the way the Urban Redevelopment Authority's (URA) quarterly index is computed. It is believed that no concrete decisions have yet been made to overhaul the methodology.

The index was last modified in 2000, after changes in 1992.

The URA, which is the public agency responsible for tracking price trends, is undertaking the study to look at other methods and to test the robustness of its own index, a spokesman said yesterday.

These studies are done periodically, he added.

The property price index, which is based on transaction prices gleaned from caveats lodged, uses the moving average method. This means that the weights used to compute the index are derived by taking the moving average of the values of properties transacted in each market segment over 12 quarters.

This aims to minimise volatility in the index resulting from fluctuations caused by short-term changes in the composition of properties sold, the URA had earlier said.

For instance, there could be many luxury homes sold in a quarter due to a fund exiting the market - a one-off exception as the high-end market has been languishing with anaemic sales.

The averaging out of the weights across a period prevents this transaction from causing the city centre segment's weighting to jump sharply since this is an anomaly in the market's sales.

But industry players point out there is a lag between the index and actual prices on the ground as it takes between four and six weeks for caveats to be lodged.

The 12-quarter moving average also means the weights assigned to various property types do not reflect current trends as yet.

But this is a trade-off as it prevents the wild swings that could accompany weights that are not smoothed out over a longer term, said DTZ South-east Asia chief operating officer Ong Choon Fah. "But in a fast-moving market, you can't depend on the index; you need to know what is happening on the ground in showflats and what the prices there are like... With the index, you could be understating the value in an up market while overstating it in a down market due to the lag."

Associate Professor Sing Tien Foo of the National University of Singapore's department of real estate agreed the time lag is crucial, especially in a volatile market.

He noted that the index could affect the Government's policy decisions so it needs to be as accurate as possible.

He suggested constructing an index just for new sales since the URA gets fresh data on this from developers in monthly updates. The URA could also work with property agencies to get more updated resale data.

Experts add that the index could also be skewed as some caveats might reflect pre-discount prices instead, although these are believed to be few.

esthert@sph.com.sg