28 March 2019
Dubai: Eye of the Beholder
A real estate price index can be created using two basic approaches (i) simple techniques or (ii) econometric techniques. The former has been used by countries such as France, Canada and Australia, whereas the latter by US, UK and Hong Kong. The Simple technique uses the simple average, weighted average or median price range during a given period, whereas the econometric technique uses a hedonic model (which factors into characteristics of the property).
The repeat sales method is considered to be a variant of the hedonic model as it overcomes the heterogeneity of real estate; however, the small sample size and timing of the sales makes it difficult to track.
The above graph illustrates the community-wide sales REIDIN index of Springs and Meadows against certain repeat sales of specific villas in the community. We can witness that both approaches highlight general direction trend of the market. However, depending on the sample size, the directionality and the amplitude of price changes can be quite different depending on the various approaches.
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