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A new residential monthly price index in Dubai has been launched that aims to capture real-time pricing and offers an alternative to official transactional data, which can be lagging in nature. The ValuStrat Price Index (VPI) is a proprietary system designed to measure the monthly price performance of a representative sample of residential properties in Dubai.
The VPI model involves determining opinions of value for a pre-defined sample comprising a fixed basket of villas located in ten areas as well as apartments located in 16 areas throughout Dubai.
“When we analyse transactional data in Dubai, one of the challenges is that the information is based upon pricing that may have been agreed months or even years before,” said Haider Tuaima, ValuStrat’s Research Manager. “In a fast-changing property market this means that it may already be out of date. Additionally, it is not always possible to filter the statistics into useable components. Or we may just find the sample sizes are too small to extract valid findings from.”
The locations are determined by calculating the mode (highest frequency) of transactions for each area within a citywide cleansed database of 24,500 records over a two-year period. The firm said this insures a representative sample covering the most influential locations in Dubai in terms of market activity.
The villas and apartments are actual units with clearly defined specifications, such as floor area, number of bedrooms, views, height and so on. Specific weights are then applied based on asset class, quality and location.
“In case of a transactional price index, the number of transactions in a particular area would form the weight of the area in the index, and this weight would keep changing period after period,” said Tuaima.
“Whereas, in the VPI, we maintain constant weights across all periods, thus freeing it from the bias of changing weights, where one period may be dominated by transactions in prime property areas, while another may have much lower weight for such areas. Moreover, there are cases where individual or sub-sector price changes may not be reflected in total transactions because there are too few in those areas.
“This issue is also mitigated by basing the VPI on opinion of value of a recurring basket of properties, rather than actual transactions.”
The firm said the VPI methodology can be adapted to cater to other asset classes, such as retail and offices. ValuStrat said it plans to roll out the VPI in Riyadh, Jeddah and Doha.
The VPI began tracking prices in January last year, which is a benchmark set at 100 points. According to ValuStrat, VPI values peaked in June last year at 113 points, then returned to 100 points in March, displaying a maturing market price correction within a span of just over a year.
“As such, residential prices appear to be broadly back to where they were at the start of 2014,” ValuStrat said in a statement. “High-end apartment locations saw most of the value correction.”
Source: Property Weekly