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New methodology for constructing real estate price indices applied to the Singapore residential market

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  • Jiang, Liang
  • Phillips, Peter C.B.
  • Yu, Jun

Abstract

This paper develops a new methodology for constructing a real estate price index that utilizes all transaction price information, encompassing both single-sales and repeat-sales. The method is less susceptible to specification error than standard hedonic methods and is not subject to the sample selection bias involved in indexes that rely only on repeat sales. The methodology employs a model design that uses a sale pairing process based on the individual building level, rather than the individual house level as is used in the repeat-sales method. The approach extends ideas from repeat-sales methodology in a way that accommodates much wider datasets. In an empirical analysis of the methodology, we fit the model to the private residential property market in Singapore between Q1 1995 and Q2 2014, covering several periods of major price fluctuation and changes in government macroprudential policy. The index is found to perform much better in out-of-sample prediction exercises than either the S&P/Case-Shiller index or the index based on standard hedonic methods. In a further empirical application, the recursive dating method of Phillips et al. (2015a,b) is used to detect explosive behavior in the Singapore real estate market. Explosive behavior in the new index is found to arise two quarters earlier than in the other indices.

Suggested Citation

  • Jiang, Liang & Phillips, Peter C.B. & Yu, Jun, 2015. "New methodology for constructing real estate price indices applied to the Singapore residential market," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 121-131.
  • Handle: RePEc:eee:jbfina:v:61:y:2015:i:s2:p:s121-s131
    DOI: 10.1016/j.jbankfin.2015.08.026
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Robert J. Hill & Alicia N. Rambaldi & Michael Scholz, 2018. "Higher Frequency Hedonic Property Price Indices: A State Space Approach," Graz Economics Papers 2018-04, University of Graz, Department of Economics.
    2. Baltagi, Badi H. & Li, Jing, 2015. "Cointegration of matched home purchases and rental price indexes — Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 80-88.
    3. Huang, Naqun & Li, Jing & Ross, Amanda, 2018. "The impact of the cost of car ownership on the house price gradient in Singapore," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 160-171.
    4. repec:gam:jecnmx:v:6:y:2018:i:3:p:32-:d:154105 is not listed on IDEAS
    5. Brunnermeier, Markus K & Rother, Simon & Schnabel, Isabel, 2017. "Asset Price Bubbles and Systemic Risk," CEPR Discussion Papers 12362, C.E.P.R. Discussion Papers.
    6. repec:kap:jrefec:v:56:y:2018:i:4:d:10.1007_s11146-017-9605-4 is not listed on IDEAS
    7. Mi, Lin & Benson, Karen & Faff, Robert, 2018. "A specialised volatility index for the new GICS sector - Real estate," Economic Modelling, Elsevier, vol. 70(C), pages 438-446.
    8. Jose Eduardo Gomez-Gonzalez & Juliana Gamboa-Arbeláez & Jorge Hirs-Garzón & Andrés Pinchao-Rosero, 2018. "When Bubble Meets Bubble: Contagion in OECD Countries," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 546-566, May.

    More about this item

    Keywords

    Cooling measures; Explosive behavior; Hedonic models; Prediction; Real estate price index; Repeat sales;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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