Small units increase house price volatility: IRES

luxuryasiahome ⋅ July 28, 2011

From January to May last year, prices of small apartment and condominium units rose 11.1 per cent compared to apartments and condominium units (or non-landed homes) in the prime and non-prime regions which saw lower gains of 5.4 per cent and 6.2 per cent respectively.

 

According to data from the Institute of Real Estate Studies (IRES) at the National University of Singapore, prices of small units grew 6.9 per cent from March to May after the cooling measures of January this year.

 

The prices of non-landed units in the central and non-central regions both gained only 3.0 per cent in the same period.

 

“Our analysis presents evidence that small units increase house price volatility. Further, price changes of these units potentially have spill-over effects on the price movements of other market segments that would require more detailed study,” said IRES in a news release.

 

Associate Professor Lum Sau Kim of the IRES-NUS added that the creation of a sub-index for small units can help better capture and measure price movements on the ground.

 

These small units, which measure 47 square metres (506 square feet) or less, have increased in importance since 2009, with their prices trending higher compared to non-landed properties in the central and non-central regions during the past two years.

 

As such, IRES said it will introduce a separate index – apart from its Singapore Residential Price Index (SRPI) – to measure the prices of “shoe box” units as their price volatility has a significant impact on overall housing prices.

 

Based on June flash estimates, the SRPI Small Units rose 1.2 per cent month-on-month. This is much higher than the overall increase in the SRPI – at 0.7 per cent for the same period.

 

Excluding small units, prices of non-landed homes in the central region fell 0.6 per cent, while those in the non-central region rose 1.5 per cent in June.

 

Using the old methodology, the overall SRPI showed home prices rose 2.5 per cent month-on-month in May compared to April’s 1.1 per cent increase and March’s 0.2 per cent rise.

 

Beginning June, the SRPI will now feature the SRPI_Small index that reflects the price movement for small housing units. This means that the SRPI will now consist of two regional sub-indices: one that excludes small units and a small unit sub-index.

 

The IRES said it hopes that by having a good measure of the prices for small units, the new indices can help buyers make better investment decisions and manage their real estate investment risks.