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Article: Separating the age effect from a repeat sales index: land and structure decomposition

TitleSeparating the age effect from a repeat sales index: land and structure decomposition
Authors
Issue Date2013
PublisherCenter for Spatial Information Science, The University of Tokyo.
Citation
CSIS Discussion Paper. The University of Tokyo, no.125, 2013, p. 1-15, i-v How to Cite?
AbstractSince real estate is heterogeneous and infrequently traded, the repeat sales model has become a popular method to estimate a real estate price index. However, the model fails to adjust for depreciation, as age and time between sales have an exact linear relationship. This paper proposes a new method to estimate an age-adjusted repeat sales index by decomposing property value into land and structure components. As depreciation is more relevant to the structure than land, the property’s depreciation rate should depend on the relative size of land and structure. The larger the land component, the lower is the depreciation rate of the property. Based on housing transactions data from Hong Kong and Tokyo, we find that Hong Kong has a higher depreciation rate (assuming a fixed structure-to-property value ratio), while the resulting age adjustment is larger in Tokyo because its structure component has grown larger from the first to second sales.
Persistent Identifierhttp://hdl.handle.net/10722/206416

 

DC FieldValueLanguage
dc.contributor.authorWong, SK-
dc.contributor.authorChau, KW-
dc.contributor.authorKarato, K-
dc.contributor.authorShimizu, C-
dc.date.accessioned2014-10-31T07:15:03Z-
dc.date.available2014-10-31T07:15:03Z-
dc.date.issued2013-
dc.identifier.citationCSIS Discussion Paper. The University of Tokyo, no.125, 2013, p. 1-15, i-v-
dc.identifier.urihttp://hdl.handle.net/10722/206416-
dc.description.abstractSince real estate is heterogeneous and infrequently traded, the repeat sales model has become a popular method to estimate a real estate price index. However, the model fails to adjust for depreciation, as age and time between sales have an exact linear relationship. This paper proposes a new method to estimate an age-adjusted repeat sales index by decomposing property value into land and structure components. As depreciation is more relevant to the structure than land, the property’s depreciation rate should depend on the relative size of land and structure. The larger the land component, the lower is the depreciation rate of the property. Based on housing transactions data from Hong Kong and Tokyo, we find that Hong Kong has a higher depreciation rate (assuming a fixed structure-to-property value ratio), while the resulting age adjustment is larger in Tokyo because its structure component has grown larger from the first to second sales.-
dc.languageeng-
dc.publisherCenter for Spatial Information Science, The University of Tokyo.-
dc.relation.ispartofCSIS Discussion Paper. The University of Tokyo-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleSeparating the age effect from a repeat sales index: land and structure decompositionen_US
dc.typeArticleen_US
dc.identifier.emailWong, SK: skwongb@hku.hk-
dc.identifier.emailChau, KW: hrrbckw@hku.hk-
dc.description.naturepostprint-
dc.identifier.spage1-
dc.identifier.epagev-
dc.publisher.placeJapan-

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