The simplest example is price psf. The element here is size in area per square foot (psf) and the purpose of comparison is a Price per Unit Area. (Read about Terminology here)
However, this is not sufficient. Two properties of the same price is common. At times, properties of the same price psf can still be common. Why? It might be because developers are producing the same price range to compete in the market.
To make the matter worse, there can be element of new and old (subsale) as time can be another factor that affects the value. Furthermore, price listed for sale can be “speculative” or “fair” or even “under value”. Amidst, many claim that they are of “below bank value” in order to solicit for a sale. Willing seller willing buyer you may say, the decision can be distorted by marketing gimmicks and images you see in the advertisement.
Hence, the method of aggregating the variables can yield an index comparing among the properties. This Index can be used to differentiate among sea of choices. A basket of measurements can serve as a better assessment tool compared to just a single comparison of “price psf”. Now, if you can understand scientific concept in experimental design, the negative forces should cancel each other. This will then enhance the experiment effectiveness to distinguish the differences between two arms of the population in the test. Same is expected of this comparative index.
In-so-doing, we go to the field to obtain feedback on general population with regards to their preferences. This will eventually provide data on market trend over time. This is like conducting survey on what most people would feel about spending their money on properties. It might be better facilities rather than having extra parking – as e-hailing is getting common and a substitute to having second car. In such case, the weightage of element “condominium facilities” should be higher than “car park numbers”.
Consequently, the index should reflect this “better facility” than that of “extra parking”. This market information is both valuable to general public and developers as it shows the trend in demand. Hopefully, the user of this Index can then sub-select properties and avoid making emotional decisions detrimental to their investments.
And, as the trend changes, market will adjust itself – as it has its own life.
If you are still interested at this Comparative Index, please go on to read the Methodology – Application of Index here.