Monday, March 29, 2010

New property index shouldn’t be restrictive

LAST Thursday’s report, ‘New monthly index of private home prices’, is constructive for the long-term development of the local property market.

It provides for greater price transparency which allows the market and regulators to work more efficiently.

In cases where different statistics indicate conflicting states of the property market, the new index can also act as a principal gauge against which these other statistics are compared.

This is due to its fairly comprehensive nature comprising ‘74,359 units in 364 projects across 26 postal districts’.

However, the inclusion of only completed homes may not be a sound practice. While there is reason to exclude ‘outlier’ deals where prices are exceptionally high or low, new launch and sub-sale prices can form a portion of the index.

This proportion should certainly be smaller than completed homes but not including them would affect the representativeness and accuracy of the index. People may inaccurately use the index to gauge property prices when considering the purchase of a new condominium launch.

Furthermore, there seems to be a premium charged for new property launches and their non-inclusion would understate the index.

As a principle, the index should give representation to segments of the market which are significant and non-completed homes fit that criterion.

The index is a significant step forward but its composition must not be too restrictive. This is especially so if it is used as a benchmark by property participants and the basis of financial derivatives.

Loke Hon Yiong

Source: Straits Times, 29 Mar 2010

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