The Housing and Development Board (HDB) is revising its Resale Price Index (RPI) to provide a better indication of price changes over time such as the evolving variety of resale flats, design, age, and location in the resale market being transacted. The revised method will compute all resale transactions from Jan 2, 2015 onwards.
The RPI provides the general price trend of resale HDB flats, and was last revised in 2002.
Last week, National Development Minister Khaw Boon Wan had said that the change is needed "to review the RPI methodology to better capture price changes over time, and control for the variations in attributes of the resale flats transacted."
The current RPI is computed with a stratification method that uses a representative set of towns and flat models. Resale prices are stratified based on flat types, models and regions, such as 'four-room flats in the Central region'. The average prices for each segment are then aggregated to derive the index.
The new method will control variations in flat attributes, such as proximity to amenities, age and floor level to derive the general price movements in each segment. The weights will be based on the total transacted value over five quarters and will be updated once every three years to to better reflect prevailing market structure.
HDB will also update its base period of computation from the fourth quarter of 1998 to the first quarter of 2009.
The current RPI from first quarter of 1990 to the third quarter of 2014 will be re-scaled to the first quarter of 2009.
HDB back-tested the index using the revised method on 2014 data and found that similar to the current RPI, the revised method still reflects a downward trend. The current method registered a 1.7 per cent drop in the third quarter of 2014 while the revised method showed a 1.8 per cent decline.
The re-scaling will only apply to the absolute resale price index values for each point in time and not the percentage changes over time.