How to use the Index?

Calculations for Comparison

To compare the current price of your targeted properties with the one in the past years, based on the index, we can conduct a simple calculation by inputing variables into the following equations:

For example, when A bought a flat B in Kornhill for $2 million in April 1991 and he wanted to know what his flat is worth in April 1994, he can estimate as follows:

   $2M + ((INDEX(April 1991) – INDEX(April 1994)) x $10000)

=$2M +$0.749956M

=$2.749956M

That means that the price of his targeted property in Kornhill Garden in April 1994 was $2.75 millions. He can also work out the relative percentage change of price accordingly.

Limitations

The practical usage of our index is limited by the following problems:

1. Our index tends to understate price change
   In our method of formulating the index, since the characteristics parameters coefficients are estimated using larger sample out of that month, it is not allowed to change sensitively with the housing market conditions which determine the marginal contributions of the characteristics over time. For example, in previous studies, lucky floor number premium is volatile and behaves similar to a luxury good: demand for such attribute is plummets quickly in slump period. Our index and our model would not account for that.
2. Omitted variables bias. The bias with excluded relevant variables will carry over to the predicted prices computed from the regression coefficients and to the hedonic indices.
3. Our index is not particularly useful in estimating relative price change over time