METHODOLOGIES

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Collectively speaking, while the methodologies applied, including but not limited to surveying, data collecting, statistical, and quantitative methods where involved, have been improving to meet or emulate certain international practices throughout the years, some technical differences and gaps may still exist. As such, this report is NOT meant to substitute, replace, or eliminate other viable news, data, and information sources or publications, but is meant instead as a viable supplement and vital cross-reference, especially in terms of offering a more ‘local’ angle and perspective. The following summarizes the methods and basis used in compiling the indexes:

Laspeyres’ Indexation

With regard to the indexation methodology, after considering the unique characteristics of property market, the construction of China Property Market Index is based on Laspeyres’ Indexation method. Using Dec 2000 as the base period, the City Real Estate Index at time t is as follow:

Where,

I’: City Real Estate Index (Base = Dec 2000)

P: General price level

A: Weighting

2000.12: Base period

t: Current period

i: Property serial number

Hedonic Modeling Indexation

Started from Jun 2005, a new indexation methodology is adopted in the calculation of China Property Market Index, in which the price of a property is related to its characteristics, or the services it provides. This method is internationally adopted by other countries, such as Japan and Korea.

Three components are included in the computation, the first component () captures the constant price effect of the change in properties’ characteristics; the second component () reflects the time trend effect towards the property price; the final component is the stochastic error term ().

Though Hedonic Modeling, we can value the individual characteristics of property by looking at how the price people are willing to pay for it changes when the characteristics change.  The hedonic pricing method is most often used to value environmental amenities that affect the price of residential properties.

Property Price Index is found by subtracting the percentage change of parameter in the base period from the percentage change of parameter in the current period.

Actual Property Price = base price + price effect of characteristically known variables + price effect of random events

Index at time t = base price at time t / base valueÍ 1000

Where

P: property price (mean price)

X: known variables

I: Price Index

P₀: base value

: Stochastic error term

: Constant term

: Parameters of characteristically known variables

Important Notes

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