Property price indices in the Commonwealth. Construction methodologies and problems
| Published date | 01 February 2004 |
| Date | 01 February 2004 |
| DOI | https://doi.org/10.1108/14635780410525135 |
| Pages | 25-54 |
| Author | Sau Kim Lum |
| Subject Matter | Property management & built environment |
Property price indices in the
Commonwealth
Construction methodologies and
problems
Sau Kim Lum
Department of Real Estate, School of Design and Environment,
National University of Singapore, Singapore
Keywords Property, Pricing, Real estate
Abstract This paper examines commonly used property price indices in several Commonwealth
countries. It finds that many of the measures may be flawed owing to two issues relating to the
index construction methodology: the quality change problem and the choice of an index number
algorithm. Using data that comprises the universe of transactions for the Singapore residential
market, alternative indices based on more rigourous estimation models are constructed that aim to
mitigate these problems. When compared to the official benchmark indices, deviations in time
series price behaviour are evident particularly for short-run dynamics. A key implication of the
results is the importance of explicitly recognizing the biases that can arise from using extant
indices. Otherwise, a reliance on flawed index signals for decision-making may result in distorted
allocations.
Introduction
The accurate measurement of real estate price movements is an issue of great
concern to both market participants and policymakers who rely on price
signals for decision-making. For many countries, real estate represents the
largest component of both household and national wealth and forms a
significant part of corporate portfolios. Given the increasing prominence of real
estate as an investment medium, adequate techniques to measure real estate
price behaviour are essential. Otherwise, decisions based on poorly constructed
indices can be biased and lead to sub-optimal portfolio diversification and
resource misallocation.
While there has been a considerable amount of work in the USA on real
estate index construction methodologies, similar research in Commonwealth
countries has been limited. To a large extent, the unavailability of large-scale
micro-datasets is a major impediment (Leishman and Watkins, 2002). As a
result, many of the indices that are commonly used to represent real estate
asset price movements in these countries are computed with a variety of data
inputs as proxies for sales and with index construction methods that are less
rigorous that those employed for computing similar performance measures in
the USA. Table I provides some information on a representative set of indices
that are currently found in selected Commonwealth countries.
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.em eraldinsight.com/res earchregister www.em eraldinsight .com/1463-578X .htm
Property price
indices in the
Commonwealth
25
Journal of Property Investment &
Finance
Vol. 22 No. 1, 2004
pp. 25-54
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780410525135
Country Index Provided by Methodology
Australia BOMA – Russell Property Index Building Owners and Managers
Association
Capital value weighted, appraisal-based, chain-linked
and time-weighted accumulation index
(Established) House Price Indices:
Eight Capital Cities
Australian Bureau of Statistics Capital value proxies as weights, transaction-based
index
Property Council of Australia
Investment Performance Index
Property Council of Australia Capital value weighted, appraisal-based, chain-linked
and time-weighted accumulation index
Canada New Housing Price Index Statistics Canada Transaction-based index (uses sales transactions along
with contractor’s survey estimates)
Russell-Canadian Property Index Frank Russell Canada Limited Capital value weighted, appraisal-based, chain-linked
and time-weighted accumulation index
Hong Kong Property Price Index Ratings and valuation department Transaction-based index (uses government valuation to
form value factors)
Centa-City Index Centaline Property Agency
Limited
Multivariate regression, transaction-based index
Malaysia Malaysian House Price Index Ministry of Finance, Malaysia Multivariate regression, transaction-based index
New Zealand QVNZ House Price Index Quotable Value New Zealand
Limited
Transaction-based index (uses government valuation to
form price ratios)
Property Council of NZ Investment
Performance Index
Property Council of New Zealand Capital value weighted, appraisal-based, chain-linked
and time-weighted accumulation index
Singapore URA Property Price Index Urban Redevelopment Authority Combination of Laspeyres fixed base year and
12-quarter moving average capital value weights,
transaction-based index
UK IPD Property Index Investment Property Databank Capital value weighted, appraisal-based, chain-linked
and time-weighted accumulation index
Nationwide House Price Index Nationwide Building Society Multivariate regression, mix adjusted,
transaction-based index (uses mortgage transactions)
Halifax House Price Index Bank of Halifax Multivariate regression, mix adjusted,
transaction-based index (uses mortgage transactions)
Table I.
Commonly reported
property performance
indices in selected
commonwealth
countries
JPIF
22,1
26
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