Constructing Residential Property Price Indices for Two Different Emerging Markets: Turkey and the United Arab Emirates (Dubai)

• House Price Measurement: Three Problems

• Four Main Approaches

• Reidin.com Dubai Residential Property Prices Index (DRPPI)

• Reidin.com Turkey Residential Property Price Index (TRPPI)

Agenda

• Exact matching of properties over time is usually not possiblebecause their quality is changing (we are not comparing like withlike).

• Low incidence of re-sales. The mix of properties changes over time,and a quality mix or compositional change problem arises.

• Index compilers often face a lack of data, particularly on propertycharacteristics.

• Those problems have implications for the choice of measurementmethod.

House Price Measurement: Three Problems

Methods for compiling house price indexes come in four mainvarieties:

• Unit Method (Central Tendency Measures): Mean or Median• Mix-Adjustment /Stratified Median

• Hedonic Regression Methods

• Repeat Sales Methods

• Appraisal-Based Methods: Sales Price Appraisal Ratio (SPAR)

Four Main Approaches

• The REIDIN.com DRPPI employs the unit method-the median approachand the index series are powered by “transaction data” made availableexclusively through the Government of Dubai Land Department.

• Dubai sales index series are calculated monthly and quarterly, and cover 7city-wide, 11 main districts and 7 major communities/ projects.

• All indices are also calculated by using a moving average algorithm.

• Outliers and extreme values (as a result of incomplete, inconsistent orerroneous data) are excluded by the outlier detection procedure of theinter-quartile range (IQR) based on the calculated price per square meterof each property.

REIDIN.com Dubai Residential Property Price Index(DRPPI)

• The REIDIN.com DRPPIs are calculated by using the Dutot price indexformula. It is the ratio of the unweighted arithmetic average of the pricesin the current period to the unweighted arithmetic average of the prices inthe base period

Where,pt : is the median of price/sqm, t months after the base periodpo : is the median of price/sqm during the base period

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REIDIN.com Dubai Residential Property Price Index(DRPPI)

REIDIN.com DRRP Index Series

Index Name Property Type Start Date Update IntervalDubai - All Residential Residential JAN 2003=100 MonthlyDubai - All Apartment Apartment JAN 2003=100 MonthlyDubai - All Villa Villa JAN 2003=100 MonthlyDubai (51SQM and Less) Apartment JAN 2006=100 MonthlyDubai (51SQM-100SQM) Apartment JAN 2006=100 MonthlyDubai (101SQM-150SQM) Apartment JAN 2006=100 MonthlyDubai (151SQM and More) Apartment JAN 2006=100 MonthlyArabian Ranches Villa 2005Q1=100 QuarterlyBusiness Bay Apartment 2006Q1=100 QuarterlyBusiness Bay- Downtown Dubai Apartment 2006Q1=100 QuarterlyBusiness Bay- Old Town Apartment 2006Q1=100 QuarterlyDiscovery Gardens Apartment 2006Q2=100 QuarterlyDubai Marina Apartment 2003Q1=100 QuarterlyDubai Marina- Jumeirah Beach Residences Apartment 2007Q1=100 QuarterlyDubai Sports City Apartment 2007Q1=100 QuarterlyEmirates Hills First Apartment 2004Q1=100 QuarterlyEmirates Hills First- Jumeirah Lake Towers Apartment 2004Q1=100 QuarterlyEmirates Hills Second Apartment 2003Q1=100 QuarterlyEmirates Hills Second- The Greens Apartment 2003Q1=100 QuarterlyInternational City Apartment 2005Q2=100 QuarterlyMirdiff Villa 2005Q1=100 QuarterlyPalm Jumeirah- Residential Residential 2007Q1=100 QuarterlyPalm Jumeirah- Apartment Apartment 2007Q1=100 QuarterlyPalm Jumeirah- Villa Villa 2007Q1=100 QuarterlyThe Springs&The Meadows Villa 2003Q1=100 Quarterly

REIDIN.com Dubai Residential Property Price Index(DRPPI)

REIDIN.com Dubai Residential Property Price Index(DRPPI)

Aug’08

REIDIN.com DRPPI vs. Oil vs. Gold

Aug 2008 Apr 2009 Dec 2009Milestones>

Nice chart !! What did really happen?

Since August 2008

• Dubai property prices face 10 pct drop -M.Stanley

• Markets down on corruption probes

• Pull back seen for Dubai property

• Dubai looks to cool off its red-hot property market

• Dubai property prices - why the only way is up

• Dubai's hot market alarms analysts

Aug 2008 Apr 2009 Dec 2009

• Pakistanis lost heavily in Dubai real estate sector collapse

• Dubai Home Prices Drop 42 Pct

• Dubai rents easing – index• Dubai amends property

law in response to defaults• Moody's warns of further

hits to UAE and Qatar property sectors

• Dubai plans second $10b bond to boost liquidity

• Abu Dhabi gives $10b to Dubai for debt payments

• A little oil, a lot of land and 100% debt

• Overseas Chinese talk about their experience of Dubai crisis

• Six Dubai companies tied to state downgraded to 'junk’

Once upon a time in Dubai

Foreign Nationals Buying in Dubai

REIDIN.com DRPPI vs. Foreign Trade

REIDIN.com DRPPI vs. Airport Passengers

Jul’09

How About Other Indices?

• The monthly REIDIN.com TRPPI uses a “stratified median index” approachfor index calculation – an approach that is widely used for indexinghousing prices – which involves dividing a population into groups (strata)such that observations within each group are more homogenous thanobservations in the entire population.

• The strata in calculations is the districts. The weights for the stratificationin the methodology, are the “total populations” of each district (cluster)which are derived from 2008 Census.

• The reason for choosing the county population as weighting criteria is thatthere is no accurate and updated data regarding the housing stock due tothe built and used unlicensed buildings without construction license underthe current state.

REIDIN.com Turkey Residential Property Price Index(TRPPI)

• Index series are calculated monthly for sales covering 7 major cities (Adana,Ankara, Antalya, Bursa, Istanbul, Izmir and Kocaeli), their 71 districts and481 sub-districts.

• The national TRPPI (Turkey Composite Index) is a weighted average of thosecity indices. Those are the cities which cover approximately 70% of allTurkey’s population.

• REIDIN.com TRPPI, uses monthly sample of offered/asked listing price data,covering over 200,000 house listings per month. Prices in data set obtainedfrom the real estate agents, newspapers, magazines, internet web sites andasset management companies.

REIDIN.com Turkey Residential Property Price Index(TRPPI)

• The REIDIN.com TRPPIs are calculated by using the Laspeyres price indexformula.

Where,pi,t is the median of price/sqm in the cluster i, t months after the base periodpi,o is the median of price/sqm in cluster i during the base periodqi,o is the total populations of each cluster (district)

• Index series are set at 100 starting at the beginning of June 2007 and arecalculated by using a moving average algorithm.

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REIDIN.com Turkey Residential Property Price Index(TRPPI)

REIDIN.com Turkey Residential Property Price Index(TRPPI)

REIDIN.com TRPPI vs. Mortgage Loan Rate

REIDIN.com Dubai and Turkey RPPIs (June 2007=100)