Understanding Residential Property Price Index

Understanding Property Price Indices

Every quarter, URA (Urban Redevelopment Authority) releases the real estate statistics for private residential properties, office space and retail space. These data includes important numbers for sales as well as for rental. Therefore, by paying attention to the index and its trends, we can draw meaningful conclusion on generally where the market is heading.

Let us look take a look at what is the URA residential property price indices in this article.

Residential Property Price Index

The chart above is an example of a Residential Property Price Index. It illustrates the general price movement of residential property prices in Singapore. The chart is compiled and updated every quarter.

So how is the information compiled?

The private residential property price index is compiled from caveats lodged with:

• The Singapore Land Authority (SLA)
• Stamp Duty data from the Inland Revenue Authority of Singapore (IRAS)
• Data provided by developers for new sales.

Note that transactions which are not caveated will still be included as the contracts are submitted to IRAS for stamp duty payments. HDB flats are excluded in the compilation of the property price index.

As URA index shows a broad price trends in private home market, by looking at the price index, it is a good tool to help us determine how the market is performing. Therefore a general uptrend will indicate that the residential property market prices are moving up.

Here we can also see the various cycles of the property market. By comparing the peaks and the bottom of the property market, we can see how much and how long is each property market bull run. By comparing at all the peaks, and comparing all the bottoms, we can also observed a general property price increase over the years. From the year 2009 to 2013, we observed the biggest increase in the property prices over in the chart.

Limitations

As the index is compiled based on past information, it can be a good reference for us to predict future trend, but it may not represent the future trend. For example, the last quarter numbers are complied before the most recent cooling measure come into effect. The effect of the cooling measure has not been felt yet.

The index takes into account the average of the entire Singapore prices. A broad trend may not be respresentative of an individual district trend or an individual condo trend. Sometimes a broad trend may indicate a generally increase in prices, but some districts or condo may be experiencing decline in property prices. Therefore it may not be representative of an individual district as it is an overall average

Just by looking at one index may not be enough to draw a clear conclusion on the property market trend. For example, if the index shows that the price trend of properties are going up, we will expect the prices to increase further. However if over this same period of time, the rental vacancy is going up and the volume of transaction is going down, it may indicate some weakness in the market, and maybe the prices may fall instead of going up. Therefore to establish a more meaningful price trend, the property prices index got to be used together with other indices (eg rental information, transaction volume) to draw more meaningful conclusions.

As a property investor myself, paying close attention to URA is a really important step to keep myself updated. Other than looking at the indices and data, I also visit the URA’s city gallery to study Singapore’s upcoming development master plan.

You can read about my past visits here and here.