Study on Property Indices : Constructing a property price index for the family apartment sector in Hanoi, Vietnam

Abstract: In modern portfolio theory, real estate can reduce substantially the total risk in a portfolio. Therefore, a flaw in the aggregate real estate index would cause a tremendous consequence for all the stakeholders in the industry. In general, there are two major approaches in producing property indices: the appraisal-based and the transaction-based approach. The transaction-index approach is more statistical or econometric in nature, tending therefore to be more formally explicit and objective or transparent in its application procedure. Hedonic regression model is considered as the most suitable for constructing cross-sectional quality adjusted house price indices. The author thus has chosen the hedonic regression model in the empirical part as the opponent method against the Official method, the one which is adopted by the Ministry of Construction of Vietnam. The results show the Official index has a different pattern compared to the indices derived from hedonic and other models. Due to the limitation and constraints during the research period, this study does not attempt to argue for which method is more appropriate than the others, but it does provide the recommendations for the better performance of those index series in the future research.