REAL ESTATE PRICE INDICES CALCULATION METHODS: METHODOLOGICAL REVIEW

Abstract

Sri Lankan Real Estate market is experiencing a boom after the post war period. In the present context investments in real estate markets have been increased by both local and international investors where international investors play a significant role. Even though there are more investment opportunities in the Sri Lankan Real Estate market, the absence of a proper mechanism to identify the price trends in real estate properties have become a vital issue which bothers investors in the decision-making process. Filling this research gap in Sri Lankan context is of vital importance not only to the potential investors and policy makers in the Real Estate market but also to professionals in other businesses who will be benefited equally while serving their information thirst. The thirst. The data collection was purely literature based. Among the available sources, there are different types of indices available worldwide. Among them, real estate price indexes were selected for further analysis purposes. Many methods have been applied to calculate the real estate price index, yet no review has done to identify which method is most suitable for Sri Lanka. This paper aims to present a critical review of the real estate price index calculation methods and techniques already applied. Real estate price index calculation methods were used as data of this study and it was collected through 35 Google scholar indexed Journal articles during 2000-2020. Critical review method and descriptive review method were used to analyze the data according to the chronological order. As per the analysis of the literature, there are 6 main methods to calculate the property price index such as, Simple Mean/ Median method, Stratification or mix adjustment method, Hedonic Regression method, Repeat sales method and Appraisal-Based methods. However, results emphasized many methods are quantitative as well as the Hedonic Regression method is the most commonly and widely used method. In addition, it is appropriate method to construct a property price index in Sri Lanka.

Keywords: Real Estate Price Index, Hedonic Regression Model, Repeat Sale model,
Appraisal Methods