The Institute of Real Estate Studies (IRES) at the National University of Singapore (NUS) has unveiled a new price index for the private non-landed residential property market in Singapore.  Developed by a team of researchers at IRES, the Singapore Residential Price Index (SRPI) provides a resource for the development of property derivatives that would help to expand the suite of financial products offered in Singapore, particularly in the context of obtaining exposure to and managing risks associated with the real estate market. 

In view of the growing importance of real estate as an asset class in the region, the SRPI will serve as a benchmark index and reference for structuring property derivative products. 

Devised by Associate Professors Fu Yuming and Lum Sau Kim, Cheng Fook Jam and Zhou Xuefeng from IRES, the SRPI is a transaction-based index that tracks the month-on-month price movements of private non-landed residential properties in Singapore and will complement existing property information on the state of the residential market.     

NUS President Professor Tan Chorh Chuan said, “As we emerge from the global financial crisis and the economic downturn, the prospects for the Singapore property market look promising.   Innovations such as property derivatives add to the depth and breadth of Singapore’s property finance landscape providing greater opportunities for investors to access real estate opportunities here and in the region.  NUS and IRES hope to contribute to this exciting development by providing an index that is transparent, timely and useful.”

Professor Deng Yongheng, Director of IRES, said, “The SRPI project demonstrates IRES’ commitment to collaborate closely with the real estate industry on research areas that ultimately enhance industry best practices, capabilities and governance.”

The methodology of the SRPI adopts a basket-based approach to overcome the problems associated with basis risk, which concern the discrepancies between what is measured and the actual market performance. The SRPI uses transactions from a subset of the market in each period to impute the price movement of the market, taking into account the unique location of each property, as well as the geographic distribution and volume of the transactions.

IRES computed the SRPI based on the market values of a fixed basket of properties selected to represent the private non-landed residential market.  The current basket comprises 364 private residential projects located across 26 postal districts in Singapore that had been completed between October 1998 and September 2009.  The composition of the basket will be adjusted every two years to reflect the changes in the completed stock of private non-landed residential properties.  The next revision of the SRPI basket is scheduled to take place in December 2011.