1. Improved price index for condominiums by Han-Suck Song a and Mats Wilhelmsson b a) Department of Real Estate Economics, Royal Institute of Technology (KTH), Stockholm, Sweden han-suck.song@abe.kth.se b) Centre for Banking and Finance (CEFIN), Royal Institute of Technology (KTH), Stockholm, Sweden mats.wilhelmsson@abe.kth.se Paper presented at the ERES 2009 conference, Stockholm June 24-27 2009

2. Who presents the correct price information? 2 DN: March 12, 2009 DN: March 17, 2009

3. Why better apartment price index? – Economic indicator. – ”Underlying asset” in derivatives and insurance contracts. – More… 3

4. Construction of real estate price indexes Example of Index construction methods: Average prices Repeated-Sales (Case & Shiller) Hedonic price index (different alternatives) Date of sale: Contract date or deed date? 4 11 september 2015Confidential - Valueguard AB © 2009 All rights reserved

5. Date of Sale: contract date vs. deed date 5 Advertisement Open house Contract date Deed date Statistic Sweden S&P KTH/Valueguard, Mäklarstatistik On average 55 days

6. Case – Stockholm apartment (condominium) market January 2005 to January 2009 6 VariableDefinitionAverageStandard deviationMinMax PriceSEK216882712878352562509975000 Living areaSquare meters60.9625.6214225 RoomsNumber of rooms2.251.0019 FeeMonthly fee: SEK2976.621268.56111966 BalcDummy: Balcony0.12000.324901 FirstDummy: First floor0.19860.399001 TopDummy: Top floor0.29730.457101 Byear1Dummy: Before 19000.05800.233701 Byear2Dummy: 1900-19390.38120.485701 Byear3Dummy: 1940-19590.23210.422201 Byear4Dummy: 1960-19750.06990.255001 Byear5Dummy: 1976-19900.04960.217101 Byear6Dummy: After 19900.20920.406701 NewDummy: New building 0.01750.131001 ElevDummy: Elevator0.50710.492401 DistanceDistance: Meters to city3882.352727.43272.6212987.20 NEDummy: Northeast0.19980.399901 NWDummy: Northwest0.31510.464601 SWDummy: Southwest0.17860.383001 No. of observations32,380

7. X and Y Coordinates Distance to the “middle” Direction – Quadrants 7 NENW SWSE

8. Estimation procedure I Single hedonic price equtation Vs. Multiple hedonic price equation (Moving Windows Regression)

9. Moving Window Regression 9

10. Estimation procedure II Spatial hedonic price index Vs. Multiple hedonic price equation (Moving Windows Regression) – There is a presence of spatial dependency in our hedonic models. – However this seems not to spill over to the price index.

11. Spatial hedonic models 11

12. Result: Single hedonic price equation 12 VariableCoefficientt-valueVIF Constant-136.1965-7.59 Living area0.903589.276.17 Rooms0.124325.154.69 Fee-0.2045-16.623.12 Balc0.01223.071.46 First-0.0047-1.351.66 Top0.02287.091.79 Byear10.059111.481.60 Byear20.01865.092.57 Byear3-0.0140-3.222.29 Byear4-0.1398-21.331.46 Byear5-0.1413-17.381.47 New0.02222.521.13 Elev-0.0117-3.711.96 Dist-0.2887-28.3037.47 Dist*NE-0.0178-1.911055.74 Dist*NW0.08395.592390.66 Dist*SW0.05253.751320.92 NE0.17192.49925.99 NW-0.4283-3.732180.63 SW-0.2462-2.261257.40 No. of observations31390 R 2 -adj.8780 Expected signs Reasonable magnitude Statistical significant High explanatory power Expected signs Reasonable magnitude Statistical significant High explanatory power

13. Average price vs. Hedonic Index 13

14. Date of Sale: Contract date vs. Deed date 14 The difference in index as compared to figures above is due to different samples; not all observations with deed date have contract dates, and vice versa.

15. Conclusion – Date of sale important (contract date vs. deed date). – Among the many alternatives to estimate an apartment price index, estimating a single hedonic price eqationn seems sufficient. *Important to test for parameter heterogenity and spatial dependency. – Further work to improve quality of apartment price index: *Most important is to improve input of quality of inputs and number of attributes.

16. Specification Dependent variables: ln(price) Independent variables: – ln(area), ln(room), ln(fee) – First floor, top floor, floor level, no. of floors – Elevator, balcony – 6 periods – ln(distance), geographical direction – Administrative parish – … – Time dummies

17. Periods Six periods – Before19001800 and older – 1900-1940Before World War II – 1940-1960After post-war – 1960-1975”Million programe” – 1975-1990Construction subsidies – After 1990Abolishment of the subsidy system

18. Specification Dependent variables: ln(price) Independent variables: – ln(area), ln(room), ln(fee) – First floor, top floor, floor level, no. of floors – Elevator, balcony – 6 periods – ln(distance), geographical direction – Administrative parish – … – Time dummies