Journal of Housing Economics 26 (2014) 126–138

Contents lists available at ScienceDirect

Journal of Housing Economics

journal homepage: www.elsevier.com/locate/jhec

The impact of construction quality on house prices q

Joseph T.L. Ooi ⇑, Thao T.T. Le, Nai-Jia Lee
National University of Singapore, Singapore

a r t i c l e i n f o a b s t r a c t

Article history: This paper examines the impact of workmanship and construction quality of new housing
Received 10 September 2013 on their sale price and capital growth. To measure construction quality, we take advantage
Revised 24 September 2014 of a unique situation in Singapore where newly completed residential projects are assessed
Accepted 17 October 2014
independently on their workmanship under the Construction Quality Assessment System
Available online 28 October 2014
(CONQUAS). Examining 100,593 sale transactions of apartment units in 205 residential
developments completed between 1998 and 2010, we find strong evidence that their sell-
JEL classification:
ing price and appreciation rate are related significantly to construction quality of the new
R21
R31
homes. Moreover, the ‘‘quality’’ premium is present in both the primary and secondary
markets. The empirical evidence suggests that apartments that are well constructed not
Keywords: only command a higher price for developers, but they also generate higher capital gains
Construction quality for homeowners and investors in the future.
Housing Ó 2014 Elsevier Inc. All rights reserved.
Price inflation

Those who design and construct high-quality buildings 1. Introduction

may follow three strategies. One strategy is passive,
continuing to provide good quality and hoping that
there will be a future although uncertain rewards from
a good reputation. The second strategy is to aim directly
at the premium and provide easily digested information
in a standardized form that would influence the price
paid for the facility. The third strategy is to acknowl-
edge that real estate funds and similar investors are
more occupied with the analysis of taxation and incen-
tives for fund managers than with the technical quality
of built facilities. . .’’
[Brochner (2011)]
q
We thank G. Ofori, K.O. Lee, M. Mori, T.F. Sing and participants at the
NUS IRES-DRE seminar for their valuable inputs and comments. We also
like to thank Piet Eicholtz and the participants at the seminar held in
Maastricht University for their comments and insights. We also thank the
editors and reviewers for their helpful inputs and comments. The main
author received financial assistance from National University of Singa-
pore for this research project.
⇑ Corresponding author.
E-mail addresses: rstooitl@nus.edu.sg (J.T.L. Ooi), thanhle.thao@gmail.
com (T.T.T. Le), rstlnj@nus.edu.sg (N.-J. Lee).
The quality of a house can be defined is different ways.
Many researchers have modeled housing quality as a func-
tion of the neighborhood characteristics and structural
attributes of the houses. At the neighborhood level, hous-
ing quality is often associated with local amenities and liv-
ing conditions. At the unit level, housing quality is
frequently restricted to structural attributes that could be
measured objectively, such as the house’s built-up area,
number of bedrooms, number of bathrooms, and land area.
Numerous studies have also identified the premiums
attached to the individual attributes using the hedonic
regression methodology (Rosen, 1974).
Besides these neighborhood and structural attributes,
buyers of new homes are particularly concerned with the
quality of construction and workmanship, i.e. the number
of defects in the completed units. Hence, it is not surprising
that several authors have posited that buyers will pay a pre-
mium for high quality homes. For example, Wieand (1983)
postulates that the occurrences of defects or breakdowns
reveal poor quality components, and in themselves indicate
undesirable conditions which the occupants will attempt to

http://dx.doi.org/10.1016/j.jhe.2014.10.001
1051-1377/Ó 2014 Elsevier Inc. All rights reserved.
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138
avoid or will only accept the dwellings at reduced rent.1
Baum (1993) also hypothesizes that ‘‘front-loading’’ the con-
struction cost improves building quality and reduces the
maintenance costs for the occupier, which may in turn lead
to higher rental value and/or and lower capitalization rate
for the building. Similarly, Ong (1997) argues that if the pub-
lic and buyers can observe the product quality, they will pay
a market price which commensurate with the quality.
There are many anecdotal incidents of homebuilders
advertising the construction quality of their developments
in the hope of gaining an edge over competing projects.
However, empirical evidence on the impact of construction
quality on housing price is limited due to the difficulty in
quantifying the quality of workmanship and construction.2
This paper attempts to fill the gap in the literature by taking
advantage of a unique situation in Singapore where the work-
manship quality of new buildings is assessed independently by
regulators throughout their construction phase until physical
completion. Under the Construction Quality Assessment Sys-
tem (CONQUAS) scheme, the assessment covers three main
components, namely structural works, architectural works,
and mechanical and electrical (M&E) works. An aggregate
CONQUAS score (out of 100%) is given for each completed
building. Focusing on the private residential market, we col-
lected the construction quality scores of 205 new housing pro-
jects in Singapore. The projects were completed within a time
span of 13 years from 1998 to 2010. Combining this informa-
tion with another database containing the sale transactions
of new and resale units over the study period, this unique data
set allows us to evaluate the impact of good construction qual-
ity on prices in the primary and secondary housing markets.
Two primary research questions guide our empirical tests.
First, do homebuyers pay a premium for new homes with good
construction quality, and if so, by how much? Second, is it
worthwhile for homebuyers to pay more for quality homes?
These questions are not trivial. First, new residential
projects are capital intensive and measures required to
improve construction quality (either through prevention
measures such as proper training of personnel, and process
analysis prior to the start of each job; or through appraisal
processes such as routine monitoring and benchmarking
using systematic checklists at various stages of the project)
incur additional costs.3 If good construction quality is not
1
The brokerage literature further suggests that the condition of homes
can be inferred from their time-on-market with a longer time-on-market
associated with lower housing quality. The intuition for this argument is
that if a house has stayed on the market for a long time, potential
purchasers are likely to suspect that the property has some flaws which are
not apparent to them but have been detected by earlier visitors (Taylor,
1999; Chen and Rutherford, 2012).
2
In the field of construction management, the three standard perfor-
mance measures for project assessment are cost, schedule and quality.
Unlike the first two measures which are quantitative in nature, quality is
subjective (see Low and Yeo, 1998; Yasamis et al., 2002).
3 implies that homebuyers who have paid a high price for
From the contractor’s perspective, effective project control involves a
multitude of tasks including the meticulous management of procurement,
cost, schedule, quality, workforce and safety. Kim and Kim (2011)
highlighted that inspection is one of the critical processes in quality
control for ensuring that final products fulfill the defined requirements
assigned by the customer. However, quality inspection requires enormous
amounts of time and effort from inspectors and contractors. Rosenfeld
(2009) classifies them as costs of quality, i.e. the cost of measures taken to
ensure and achieve a satisfactory level of quality.
127
capitalized into housing prices, there is no incentive for
the profit-maximizing homebuilders to produce good qual-
ity homes. This may consequently lead to a ‘‘lemons’’ market
where only low quality of housing are provided (Akerlof,
1970). From a policy perspective, this is certainly not desir-
able, which may then necessitates the regulators intervening
through incentives and or penalties to ensure that construc-
tion quality in the housing development sector is not com-
promised. From the property appraisal literature, the
premium for a marginal improvement in the construction
and workmanship quality of housing is rarely incorporated
in the appraiser report too.
Moreover, house price changes affect many households’
wealth holdings because home equity constitutes a large
percentage of household wealth (Le Blanc and Lagarenne,
2004). House price appreciation can be tapped and makes
trading up in the housing market easier, likely increasing
turnover sates in the residential market (see Bourassa
et al., 2009). Variations in residential property prices also
affect the risk level of a homeowner’s portfolio (Englund
et al., 2002). Hence, it would be insightful to calibrate to
what extent capital appreciation of housing is related to
construction quality. This line of enquiry extends a stream
of the literature which finds that price appreciation of
houses is not homogenous (see Smith and Tesarek, 1991;
Archer et al., 1996; Smith and Ho, 1996; Clapp and
Giaccotto, 1998; Coulson and Lahr, 2005; Harding et al.,
2007; Bourassa et al., 2009; Ferreira and Gyourko, 2012).
We first identify the marginal value of construction
quality by analyzing a total of 100,593 sale transactions
of multi-family dwelling units with varying CONQUAS
scores. Standard hedonic equations are employed to con-
trol for building and unit heterogeneity as well as real
estate market conditions and other location-, time- and
developer-fixed effects. Focusing on the value of good con-
struction, we introduce additional variables into the hedo-
nic pricing function to capture the effect of construction
quality. Our results show a positive and significant positive
relationship between house prices and CONQUAS scores,
indicating that, all else being equal, a premium exists for
construction quality. Specifically, a one standard deviation
improvement in the CONQUAS score increases the selling
price of an average home by 2.92%. It is interesting to
observe that the premium on construction quality exists
in the presale market, whereby houses are purchased off
the drawings, i.e. before they are physically built. This is
so despite that the CONQUAS scores are only ascertainable
after the new homes are physically built. Our analysis sug-
gests that the score of previous projects built by the same
homebuilders is a good predictor of the construction qual-
ity for their next development project.
We also observe that the construction quality premium
persisted in the resale (secondary) housing market. This
good quality homes can at the least recoup the premium
on construction quality when they resell the houses in
the secondary market. In fact, the effect of quality in the
resale market is almost twice that in the presale market.
New homes in the presale market can enjoy a 0.36% pre-
mium in sale prices for every additional CONQUAS score,
while existing homes will sell for 0.69% more. An average
128 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138
house in our sample, which is sold at about $1,000,000, can
raise its price by $21,456 and $41,124 in the presale and
resale market, respectively, if its CONQUAS score is one
standard deviation higher than the average score. The
lower premium attached to construction quality of uncom-
pleted homes could be attributed to either a discount in
the presale market due to uncertainty in the eventual con-
struction quality scores, or the value of good construction
quality homes appreciating faster over time.
To probe deeper, we next examine how construction
quality affects the price appreciation of new housing over
time. Prior studies have shown that houses of different
quality and location do not appreciate at the same rate.
The null hypothesis is that the returns of high construction
quality homes are not statistically different from the aver-
age market return. To test this hypothesis, we employ a
generalized version of the repeat-sales model to estimate
the house price appreciation for 23,843 pairs of housing
sales in our sample. Controlling for the overall price move-
ment in the market, we observe that prices of high quality
homes appreciated significantly more than the average
quality homes. This confirms that homebuyers who have
paid for good quality homes earned a higher return than
buyers who have purchased lesser quality homes over
the same period.
This paper is organized as follows: Section 2 reviews
prior studies in the literature which have examined the
relationship between quality and housing prices and or
rentals. Section 3 outlines the objective measure of con-
struction quality we used in the research, and describes
the sample used for the study. Sections 4 and 5 present sep-
arately the research methodology and empirical results for
each of our two research questions. Section 6 concludes
with a summary of the main findings and their implications.
2. Literature review
It is widely recognized that home buyers are jointly
purchasing a wide variety of services at a particular loca-
tion, such as a certain number of square feet of living space,
different kinds of rooms, a particular structure type, an
address, accessibility to employment, a neighborhood
environment, a set of neighbors, and a diverse collection
of public and quasi-public services including schools,
garbage collection, and police protection. However, as
noted by Kain and Quigley (1970), the difficulty in measur-
ing the ‘‘quality’’ of a dwelling unit, that is how they impact
the occupiers’ utility, is perhaps the most vexing problem
encountered in evaluating the attributes of bundles of res-
idential services. Researchers try to determine the contri-
bution of specific housing attributes to property values or
rentals by moving to a regression framework. However,
for these attributes to be included in the hedonic pricing
models, they need to be measurable.
Kain and Quigley (1970) were amongst the firsts to rec-
ognize ‘‘quality’’ as an individual attribute contributing to
the value of a property. They employ data from three sep-
arate surveys of around 1500 households and dwelling
units in the city of St. Louis completed in the summer of
1967. In the first survey, interviewers were instructed to
rate the quality of a particular aspect of each dwelling unit,
for example, the walls, on a scale ranging between 1
(‘‘excellent condition’’) and 5 (‘‘requires replacement’’). A
second survey conducted by city building inspectors pro-
vided quality ratings for specific aspects of the exterior of
each sample structure. In the third survey, building inspec-
tors also rated the quality of the block facing both sides of
the streets on which the sample dwelling units were
located. The combined surveys provided 39 separate vari-
ables indicating the quality of the sampled dwelling units,
which are then consolidated through factor analysis into
five composite factors, representing qualities of the ‘‘basic
residential’’, ‘‘dwelling unit’’, ‘‘nearby properties’’, ‘‘non-
residential use’’, and ‘‘structure’’, respectively.4 In their
hedonic regressions, three out of the five quality measures
were statistically and economically significant in affecting
housing rental values. Moreover, they find that the physical
and environmental quality of dwelling units has about as
much effect on the price of housing as the number of rooms,
number of bathrooms, and lot size.5
In another study covering twenty U.S. cities between
1974 and 1976, Wieand (1983) observes that housing
quality is an important factor in rental consideration. He
measures housing quality by the probability-of-defect. This
is derived from the Annual Housing Survey which asked
the survey respondents about the presence of specific
defects such as incomplete plumbing, broken kitchen
appliances, or basement leaks in their apartments.
Ommeren and Koopman (2011) recent study on public
housing in Rotterdam also find that maintenance quality
is negatively related to residential moving probabilities
whilst positively connected with rent. Categorizing the
sampled apartments into high-, average- and low-quality
(based on maintenance condition obtained from the own-
ers), the authors find that households are willing to pay a
rent increase of 6.8% to move from a low-quality apart-
ment to an average-quality one, and 6.7% more to move
from an average-quality unit to a high-quality one.
The above studies have generally focused on the condi-
tion of existing homes, which is largely related to their
state of maintenance and disrepair.6 Building age has been
employed as an instrument of the otherwise unobservable
housing quality. This is on the basis that building age and
4
‘‘Basic residential quality’’ variable measures the overall quality of the
exterior physical environment such as overall condition of the structure
and parcel, landscaping, cleanliness of the parcel and block face, conditions
of streets, walks and driveways. ‘‘Dwelling unit quality’’ variable represents
the structural condition and housekeeping inside the sample dwelling unit.
‘‘Quality of proximate properties’’ variable accounts for the cleanliness,
landscaping, and condition of nearby properties. ‘‘Non-residential use’’
variable measures the presence and effect of commercial and industrial
land uses in the immediate vicinity. ‘‘Average structure quality’’ variable
measures the average quality of structures on the block face.
5
The coefficients suggest an increase of $7.22, $4.02 and $2.08,
respectively, for each additional quality unit – a substantial effect given
that the mean value of contract rents of their sample is $63.19. Similarly,
testing with the property owners sample confirms that they are also willing
to pay $750–$1400 more for properties with higher quality.
6
Using data on 1.8 million house transactions in Massachusetts,
Campbell et al. (2011) recently find that houses sold close to the death of
at least one of the seller are sold at 5–7% lower prices than other houses.
They attribute the death-related discounts to result primarily from poor
maintenance of single-family housed by older sellers.
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138
quality are highly correlated (that is, newly built houses
tend to be in better physical shape than older houses).
Nevertheless, Baum (1993) and Harding et al. (2007) have
cautioned that it would be incorrect to relate the age of
structure to quality, especially for a property that has been
substantially refurbished or diligently maintained by its
owners.7 Moreover, self-assessment by owners may under-
standably overstate the quality of their properties. Occupi-
ers’ survey are also subjected to disparities in the
respondents’ view on what constitute good quality or their
diligence in reporting defects.8
In sum, prior studies that have attempted to relate ‘‘qual-
ity’’ to prices or rentals of existing homes focused primarily
on the maintenance standard of the dwellings.9 However,
researchers face a potential endogeneity problem because
expensive homes are likely to have better quality. For exam-
ple, the literature argues that rent controls have an adverse
effect on the quality of housing because landlords are dis-
couraged from investing in the maintenance of their proper-
ties (Olsen, 1988; Gyourko and Linneman, 1990; Moon and
Stotsky, 1993; Sims, 2007). In addition, empirical research
in this area is plagued by the lack of an objective measure
of what is good (or bad) construction quality. Adopting an
objective measure of construction and workmanship quality
of new private housing developments in Singapore, our study
is the first to examine explicitly the influence of construction
quality on housing prices and returns.
3. Construction quality
We measure construction quality using the CONQUAS
scoring metric, which has been recognized in construction
economics literature as an objective measure of construc-
tion workmanship quality (Ling, 2005). The scoring metric
was first introduced in 1989 by the Building Construction
Authority (BCA) as a standardized method of quality assess-
ment for homebuilders to set targets for contractors and to
grade the quality of their finished buildings.10 Adopted as
the de facto yardstick for measuring the workmanship qual-
ity of building projects in Singapore, all public-sector pro-
jects with a gross floor area exceeding 5000 m2 are
required to be assessed under the CONQUAS. Private-sector
projects built on leasehold sites acquired from the State are
7
Baum (1993) contends that by measuring building depreciation and
developing a classification of building qualities, it is possible to relate
qualities to depreciation in order to prove a stronger and more meaningful
relationship exists between quality and depreciation than that which exists
between age and depreciation. Harding et al. (2007) further argue that the
rate of decay is slower for homeowners who maintain their homes.
8 11
As noted by Lichtenstein and Kern (1987), quality measures obtained
from tenants are unreliable and subject to serious measurement error
because evaluation of quality involves subjective judgment. Consequently,
different tenants are unlikely to apply consistent standards.
9
The contribution of architectural design, which is commonly linked to
the aesthetic appearance and internal spatial configuration of the housing
project, to the value of buildings has been evaluated empirically by Vandell
and Lane (1989). The results of their study confirm a strong influence of
design on rents; structures rated in the top 20% for design quality were
predicted to extract almost 22% higher rents than those rated in the bottom
20%.
10
Oakland and Marosszeky (2005) report that property developers have
used the CONQUAS score to drive improvement and to differentiate
themselves from their competitors.
129
also assessed. Other private developers may also request
for their buildings to be assessed (Ofori and Gang, 2001).11
Other countries that have since adapted the CONQUAS suc-
cessfully include United Kingdom and Hong Kong.
The CONQUAS assessment system consists of three main
components: Structural Works, Architectural Works, and
Mechanical and Electrical (M&E) Works within each compo-
nent are further divided into different items for assessment.
Structural Works comprises: (i) Site inspection of form-
work, steel reinforcement and finished concrete during
construction. The assessment includes structural steel
and pre-stressed concrete if each constitutes more than
20% of the total structural cost; (ii) Laboratory testing of
compressive strength of concrete and tensile strength of
steel reinforcement; and (iii) Non-destructive testing of
the uniformity and the cover of hardened concrete. The
structural integrity of the building is of paramount impor-
tance as the costs of failure and repairs are very significant.
Architectural Works deals mainly with the finishes and
components. This is the part where the quality and stan-
dard of workmanship are most visible. The assessment
covers: (i) Site inspection of internal finishes, roofs, exter-
nal walls and external works at the completion stage of the
building. Internal finishes include floors, internal walls,
ceiling, doors, windows and components (architectural
works that are not classified above); and (ii) Material &
Functional tests such as water-tightness of windows and
external walls and adhesion of internal wall tiles.
M&E Works covers Air-conditioning & Mechanical Venti-
lation Works (ACMV), Electrical Works, Fire Protection
Works, the Sanitary & Plumbing Works and the basic M&E
fittings. Their inclusion in the scoring is in view of their
increasingly high cost proportion and impact on the perfor-
mance of a building. The stages of the assessment include:
(i) Site inspection of in-process works during construction
such as on ACMV ductworks, electrical conduits, concealed
pipes; (ii) Site inspection of final installed works such as the
Air-Handling Unit (AHU), the cooling tower, fire alarm con-
trol panel; and (iii) Performance tests on selected works
such as Water Pressure Test, Earthing Test, Dry Riser Test.
All assessments are carried out independently by asses-
sors from the Quality and Certification Department of BCA.
For Structural and M&E Works, the assessment is carried
out throughout various construction stages of a project.
For Architectural Works, the assessments are carried out
on the completed building.12 The weightage for private
housing projects are allocated as follows: Structural Works
(25%), Architectural Works (65%), and M&E Works (10%).13
The fee for CONQUAS assessment can range from $10,600 (for
developments with total floor area less than 5000 sqm) to $126,000 (for
developments with total floor area more than 110,000 sqm). Among all
999-year and freehold residential projects that were completed between
1998 and 2010 in Singapore, less than 40% do not have CONQUAS scores.
12
The assessment includes tests on the materials and the functional
performance of selected services and installation. These tests helps to
safeguard the interest of building occupants in relation to safety, comfort
and aesthetic defects, which surface only after sometime. Information on
the CONQUAS is available on the BCA’s website: http://www.bca.gov.sg.
13
The weightage system, which is a compromise between the cost
proportions of the three components in the various buildings and their
aesthetic consideration, is aimed at making the CONQUAS score objective in
representing the quality of a building.
130 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138

Table 1
Descriptive statistics of CONQUAS scores by project characteristics.

Mean Median Std. deviation Minimum Maximum No. of projects

All projects 83.4 82.5 6.1 62.5 96.2 205
By completion year
1998–2001 78.9 79.6 4.0 67.4 86.5 61
2002–2005 82.4 82.1 5.3 62.5 94.1 60
2006–2010 87.3 87.8 5.5 69.0 96.2 84
By land tenure
Freehold 84.7 84.8 5.7 69.0 96.2 103
Leasehold 82.0 81.3 6.3 62.5 94.8 102
By project size
<200 units 83.4 83.5 6.7 62.5 94.8 73
201–500 units 83.1 82.5 5.9 69.0 96.2 92
>500 units 83.8 82.5 5.8 69.1 95.6 40
By location
Prime location 85.8 86.6 5.9 72.6 94.8 66
Non-prime location 82.2 81.8 5.9 62.5 96.2 139

This table presents the descriptive statistics of the CONQUAS scores of 205 private residential developments completed in Singapore between 1998 and
2010. The scores shown below are in percentage terms and the highest score a development can get is 100%.

The CONQUAS score for a building is the sum of points

awarded to the three components. Based on a maximum
score of 100%, a score of 80 means 80% of the items checked
for workmanship quality met the CONQUAS standards. Thus,
a building that achieves a higher score is better constructed,
in terms of workmanship quality, than a building with a
lower score. The assessment standards are fine-tuned peri-
odically and the last major revision carried out in 1998 when
CONQUAS 21 was launched. For consistency, this marks the
beginning of our sample period.
In total, we managed to collect the CONQUAS scores of
205 new residential projects that were completed between
1998 and 2010. Table 1 reports the descriptive statistics of
the CONQUAS scores for the full sample as well as sub- Fig. 1. Number of developments and their average CONQUAS scores,
samples, which are partitioned according to the land ten- 1998–2010. This figure plots the number of new private residential
ure, year of completion, and size of developments. The projects completed annually between 1998 and 2010 (right axis). The
average project in the sample has a score of 83.4.14 We scores shown on the left axis are the average scores of the projects
completed in each year.
see an obvious rising trend over the study period, with the
average score improving from 78.9 during 1998–2001 to
87.3 during 2006–2010. This trend is confirmed in Fig. 1,
which plots the number of residential projects completed
to 99 years in Singapore. For the purpose of our study, res-
annually between 1998 and 2010 and the average CONQUAS
idential developments with longer lease tenure of 999-
scores of all projects completed in each year over the study
years are classified as freehold properties. Table 1 illus-
period. The rising trend indicates that construction quality
trates that the construction quality of the average freehold
of new private housing projects has, on average, improved
project is 270 basis points higher than the average lease-
over time, possibly due to a shift in demand for good con-
hold project with the difference being statistically signifi-
struction quality by homebuyers, or due to the developers
cant at the 1% level. In addition, the CONQUAS scores are
and contractors becoming more familiar with the CONQUAS
significantly higher for residential projects in planning dis-
assessment criterion.
tricts 1–4, and 9–11, which are traditionally regarded as
In Singapore, residential properties can be built on land
the prime residential locations in Singapore (see Fig. 2).
with either a freehold or leasehold tenure. Freehold prop-
There is, however, no significant difference in the CON-
erties are usually more expensive because the land is
QUAS scores for huge and small development projects.
owned by the owners in perpetuity. The tenure of lease-
hold properties, on the other hand, is limited, commonly
4. Construction quality and house prices
14
The top three developments ranked by CONQUAS scores in our sample
are: The Arte (96.2), The Cascadia (95.6) and City Squares Residence (95.6).
In this section, we examine the impact of good con-
At the other end, the bottom three developments are: The Trumps (62.5), struction quality on the sale prices of new homes. To
Hilltop Grove (67.4) and Starville (69.0). explore how construction quality affects property values,
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138
Fig. 2. Location map of sampled projects. This figure plots the locations of the 205 sampled private residential developments in relation to the Central
Business District (CBD), which is outlined in red, and the planning districts, which are numbered from 1 to 28. The prime residential areas in Singapore are
located in districts 1–4, and 9–11. (For interpretation of the references to colour in this figure legend, the reader is referred to the web version of this article.)
we begin by estimating a standard hedonic price model
with an additional variable measuring the construction
quality score. In general, the price model is
Pi ¼ Pxi þ mi ; ð1Þ
where Pi is the natural log of the real selling price of the ith
property, xi is a vector of explanatory variables containing
physical and location characteristics, development specific
attributes, and the construction quality score. The error
term, mi is assumed to be normally distributed with mean
zero and variance r2v .
Our sample for the hedonic regressions comprises
100,593 sale transactions in the 205 developments sold
between 1998 and 2011. The data on the sale price, con-
tract date, and floor area for each unit sold are obtained
from Real Estate Information System (REALIS), a data set
maintained by Singapore’s national land use planning
authority, the Urban Redevelopment Authority (URA).
The transaction price is the agreed purchase price of the
property, and excludes stamp duties, legal and agency fees,
and other professional fees. The prices are then adjusted
using the property price index to 1998. Table 2 defines
and presents the descriptive statistics of the variables used
in the empirical model for the entire sample. Monetary val-
ues are expressed in Singapore dollars throughout. The
average unit in our sample was sold at slightly above S$1
million and has a floor area of 122.4 m2 (1317 ft2). About
37% of the sampled units are built on freehold or 999-year
leasehold land, as opposed to 63% being built on 99-year
leasehold land. Signifying the popularity of condominiums
in Singapore, 85% of the sale transactions involved condo-
minium units.15 Singapore occupies a small physical area.
15
The term ‘‘condominium’’, as used in the Singapore context, is a
planning term which refers to residential projects developed on sites of at
least 40,000 sq ft, and the residents share the communal facilities. It is not
to be confused with the legal term used in the US, which refers to strata
title ownership of multi-family apartments where the land and common
areas are co-owned by all the homeowners. Thus, non-condominium
projects (i.e. residential projects developed on sites smaller than 40,000 sq
ft in which the residents still share the communal facilities) can still be sold
in Singapore.
131
For each of the developments in our sample, we also mea-
sure the distance to the Central Business District (CBD)
and the closest subway station. The greatest distance to a
subway station is only 6.6 km. Similarly, the development
farthest away from the CBD is only 17.9 km.
Presale transactions refer to units sold by the home-
builders to the first buyers prior to the physical comple-
tion of the development.16 Sub-sale transactions refer to
the first buyers (who purchased their unit from the
developer) selling the uncompleted units to third parties.
Notably, 55% and 12% of the sale transactions occurred in
the presale and sub-sale markets where the new housing
units have not been physically completed. The balance
33% of the sample is resale transactions which involved
owners selling their physically completed units in the
secondary market. To control for sales in the presale and
sub-sale markets, we incorporate two additional variables
in the regression models, namely NEWSALE and SUBSALE,
representing sale of uncompleted new housing by home-
builders, and resale by the original buyers prior to the
project completion.
The estimation results are presented in Table 3. In
Model 2, we control for time-varying effects by including
a set of dummy variables for transaction year as well as
unobserved fixed-effects associated with the homebuilder
and location.17 Overall, the estimates in the model are sig-
nificant with the models explaining more than 78% and
90% of the price variations in Model 1 and Model 2, respec-
tively. All the explanatory variables behave as expected. The
effect of living AREA and floor LEVEL on sales price is positive
and robust across subsamples. Developments on freehold
sites command a significant price premium, whilst age has
a negative impact on sale price. As expected, the distance
16
The dominance of the presale market is consistent with the practice of
selling new condominiums before their completion in Asia, such as China,
Hong Kong, Taiwan, Singapore, South Korea, and Malaysia (see Munneke
et al., 2011). It is noted that built-to-suit is not an option for multi-family
developments.
17
The set of binary variables can usefully proxy unmeasurable attributes
of the planning sectors and homebuilders that affect house prices, such as
perception on the developers’ goodwill and reputation.
132 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138

Table 2
Descriptive statistics of sample.

Variable Definition Mean Std. dev. Min Max

PRICE Transaction price 1,086,317 987,611 107,000 30,000,000
AREA Floor area of unit (m2) 122.35 43.35 26.00 1023.00
AREA_SQ Squared floor area of unit 16,848 18,310 676 1,046,529
FLOOR Floor level of unit 9.99 8.65 1.00 69.00
FLOOR_SQ Squared floor level of unit 174.54 352.70 1.00 4761.00
FH Binary variable for freehold unit 0.37 0.48 0.00 1.00
CONDO Binary variable for condominium unit 0.85 0.35 0.00 1.00
AGE No. of years between sale and completion 1.78 3.15 0.00 14.00
CBD Distance from CBD (km) 9.06 4.90 0.37 17.91
MRT Distance from MRT (km) 1.38 1.16 0.06 6.52
NEWSALE Binary variable for new sale transaction 0.55 0.50 0.00 1.00
SUBSALE Binary variable for sub sale transaction 0.12 0.32 0.00 1.00
CONQUAS CONQUAS scores 83.30 5.96 62.50 96.20

This table presents the definition and sample statistics of the dependent and explanatory variables in the empirical models. The descriptive statistics are
based on the final sample of 100,593 sale transactions between 1995 and 2011.

Table 3
Estimation results on the impact of construction quality.

Model 1 Model 2 Model 3

Constant 12.10*** 12.26*** 12.72***
(679.2) (557.1) (682.4)
AREA 0.0106*** 0.00966*** 0.00966***
(70.68) (50.14) (50.23)
AREA_SQ 9.25e06*** 9.51e06*** 9.50e06***
(21.44) (16.88) (16.90)
LEVEL 0.00408*** 0.00527*** 0.00532***
(18.29) (27.34) (27.66)
LEVEL_SQ 4.55e05*** 3.04e06 8.78e07
(7.592) (0.549) (0.159)
FH 0.176*** 0.126*** 0.126***
(106.4) (81.02) (81.32)
CONDO 0.0133*** 0.0482*** 0.0542***
(5.014) (22.16) (25.31)
AGE 0.0132*** 0.0207*** 0.0253***
(36.67) (64.31) (87.03)
CBD 0.0403*** 0.0321*** 0.0309***
(227.8) (52.40) (50.57)
MRT 0.00239*** 0.00728*** 0.00921***
(3.890) (13.21) (16.71)
NEWSALE 0.0228*** 0.0156*** 0.00365*
(8.658) (8.186) (1.912)
SUBSALE 0.0329*** 0.0245*** 0.0199***
(9.483) (10.51) (8.496)
CONQUAS 0.00493*** 0.00544*** 0.00438***
(33.22) (38.20) (28.90)
Year dummy No Yes Yes
Location dummy No Yes Yes
Homebuilder dummy No Yes Yes
Observations 100,593 100,593 100,593
Adjusted R-squared 0.789 0.906 0.906

This table presents the OLS estimation results with 1998 market-adjusted price as the dependent variable. In Model 1 and Model 2, the original CONQUAS
scores are used. Model 3 uses the orthogonalized CONQUAS scores (which involves regressing the original scores against the development and market
characteristics and using the residuals as the proxy for construction quality). White’s heteroscedastic robust t-statistic standard errors are reported in
parenthesis.
***
Represents significance at the 1.0% level.
*
Represents significance at the 10.0% level.

to CBD coefficient is negative and significant in all the externality from pedestrian congestion, noise, or other neg-
models. The distance to metro station coefficient, however, ative externalities from a metro station is stronger than the
is positive and significant, which suggests that the negative countervailing positive externality of easy access to mass
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138 133

Table 4
Correlation of project characteristics with CONQUAS scores.

PRICE AREA FLOOR FH CONDO AGE CBD MRT CONQUAS

PRICE 1
AREA 0.6297 1
FLOOR 0.2375 0.0163 1
FH 0.3688 0.1636 0.0548 1
CONDO 0.0403 0.1401 0.1720 0.1411 1
AGE 0.0008 0.0192 0.1008 0.1390 0.0013 1
CBD 0.5002 0.0489 0.3518 0.1822 0.1478 0.1495 1
MRT 0.0648 0.0735 0.2460 0.0724 0.0102 0.0577 0.1968 1
CONQUAS 0.3091 0.0149 0.2938 0.1631 0.0160 0.2502 0.4288 0.1603 1
CONQUAS# 0.0734 0.0378 0.0468 0.0136 0.0197 0.0357 0.0378 0.0685 0.6157

This table presents the pair-wise correlation coefficient between CONQUAS scores and the other explanatory variables in the empirical model based on the
final sample of 100,593 observations. The definition of the variables is presented earlier in Table 2. CONQUAS# represent the orthogonalized CONQUAS
scores, which are the residuals from regressing the actual CONQUAS scores against the development’s characteristics.

transportation (see Munneke et al., 2011).18 The underlying
performance of the real estate market also has a strong
impact on transaction prices.
Our main variable of interest is construction quality,
which is instrumented by the project’s CONQUAS score. If
construction quality is capitalized into house prices, then
we would see a significant relationship between the CON-
QUAS score and price. The regression results indeed show
that homes with higher CONQUAS score command a
higher price, all else equal. Economically, the magnitude
of the coefficient indicates an increase of 0.49% in the sell-
ing price for each additional CONQUAS score. In other
words, a one standard deviation increase in the CONQUAS
score would result in the average apartment in our sample
selling for 2.92% higher, or S$31,720 more. For a large pro-
ject with 500 units, the overall increase in the sales reve-
nue arising from one standard deviation improvement in
the CONQUAS score would be around S$ 15.9 million.
While it may be argued that the observed premium may
be related to either the developer’s reputation (Chau
et al., 2007),19 it should be noted that the coefficient for
CONQUAS continues to be significant after controlling for
unobserved fixed-effects associated with individual home-
builders in Model 2.
Table 4 reports the pairwise correlation matrix between
CONQUAS scores and various attributes of the residential
project. Consistent with regression results reported earlier,
we see a significant positive relationship between the
CONQUAS scores and average selling price of the project.
However, the CONQUAS scores are also correlated with
various attributes of the development and market. For
example, we observe that expensive and freehold
18
The results are robust to measuring the distance to MTA and CBD in
natural logarithm to account for non-linearity. As suggested by a referee,
the positive sign on MTA could be less indicative of characteristics of the
metro station than to those of the street under which the MTA lies. In
particular, MTA was planned to improve access to certain neighborhood,
and there is some path dependence of passenger rail lines to pre-existing
road system. Nevertheless, 36 out of the 53 MTA stations on the two service
lines in Singapore are located above ground.
19
Comparing two residential developments in Hong Kong that are similar
in most aspects except for their developers, Chau et al. (2007) find that the
project built by the more reputable homebuilder commanded a 6.4%
premium, which persisted even after the completion of both projects.
properties tend to have higher construction quality.
Development height and distance to CBD also have signif-
icant relationship with construction quality. To mitigate
the potential bias, we orthogonalize the CONQUAS scores
by regressing the actual CONQUAS scores against a set of
development characteristics, namely size, tenure, develop-
ment height and a set of fixed effects for planning districts
and time, and employing the residuals (which are then not
related to the explanatory variables) as a proxy for con-
struction quality. The regression results, presented under
Model 3 that applies the orthogonalized CONQUAS, are
consistent with our earlier conclusion regarding the rela-
tionships of the explanatory variables and sale price.
In Table 5, we further substitute the overall CONQUAS
score with the value of the respective components, namely
structural, architectural, and M&E scores.20 The estimation
results show that coefficient for each component score is
positive and statistically significant. Overall, the observed
positive relationship between sale price and construction
quality is robust to alternative proxies used to measure
the quality of construction.
To examine the impact of construction quality in the
different sub-markets, we also run separate regressions
for transactions in the resale, sub-sale and presale housing
markets. While the estimation results, as tabulated in
Table 6, show that the relationship between house price
and construction quality is robust, they also reveal several
implications on the relationship between house price and
construction. First, concerns over the quality of workman-
ship and construction defects are expected to be more
pressing in the presale and sub-sale markets where dwell-
ing units are purchased prior to their physical completion.
Chau et al. (2007), for example, contend that housing units
sold under a presale system suffer from the risk of having
lower quality than intended in the initial contract because
homebuilders, having received payment for the unfinished
units, have incentives to increase their profit by cutting
construction costs. Ong (1997) also postulates that build-
ing defects are accentuated by the practice of homebuild-
20
For this procedure, 593 transactions had to be omitted because the
disaggregated CONQUAS scores of a development, namely Glendale Park,
are not available. The regression results are not sensitive to the omission of
this development.
134 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138

Table 5
Estimation results with alternative measures of construction quality.

Model 4 Model 5 Model 6

Constant 13.05*** 13.03*** 13.03***
(851.2) (860.7) (860.7)
AREA 0.00967*** 0.00968*** 0.00966***
(50.22) (50.12) (50.32)
AREA_SQ 9.50e06*** 9.52e06*** 9.47e06***
(16.89) (16.88) (16.90)
LEVEL 0.00547*** 0.00536*** 0.00528***
(28.35) (27.79) (27.46)
LEVEL_SQ 2.79e06 1.53e06 2.26e06
(0.504) (0.276) (0.410)
FH 0.128*** 0.121*** 0.126***
(79.58) (75.69) (78.97)
CONDO 0.0586*** 0.0530*** 0.0590***
(27.67) (24.39) (27.66)
AGE 0.0254*** 0.0254*** 0.0255***
(86.21) (87.14) (87.41)
CBD 0.0288*** 0.0319*** 0.0316***
(46.87) (51.52) (51.82)
MRT 0.00804*** 0.00971*** 0.00951***
(14.66) (17.61) (17.36)
NEWSALE 0.00255 0.00334* 0.00325*
(1.327) (1.740) (1.690)
SUBSALE 0.0185*** 0.0193*** 0.0199***
(7.855) (8.213) (8.419)
STRUCTURAL 0.00284***
(22.39)
ARCHITECTURAL 0.00282***
(24.49)
M&E 0.00221***
(28.31)
Year dummy Yes Yes Yes
Location dummy Yes Yes Yes
Homebuilder dummy Yes Yes Yes
Observations 100,000 100,000 100,000
Adjusted R-squared 0.906 0.906 0.906

This table presents the OLS estimation results with 1998 market-adjusted price as the dependent variable. In Model 4, Model 5 and Model 6, the overall
CONQUAS score for each project is replaced by the three sub-components, namely structural, architectural and M&E works, respectively. White’s het-
eroscedastic robust t-statistic standard errors are reported in parenthesis.
***
Represents significance at the 1.0% level.
*
Represents significance at the 10.0% level.

ers marketing their projects prior to the completion of con-
struction. Thus, all else being equal, one would expect a
lower premium attached to construction quality for homes
that are sold before their physical completion. Model 9 in
Table 6 indeed shows that buyers in the presale market
are likely to discount the premium for construction quality.
Second, while the possibility that house prices may
influence CONQUAS scores in the presale market cannot
be discounted,21 the fact that the coefficient for CONQUAS
remains positive and statistically significant in the sample
using only resale transactions shows that the positive pre-
mium attached to construction quality still persists after
controlling for the potential endogenous variable. Moreover,
to account for the predictability of the construction quality
of homes under construction, we re-estimate the model for
21
Highlighting that maintenance may be endogenous to house value,
Harding et al. (2007) argue that ‘‘it is likely that owners of expensive homes
will spend more on home maintenance than owners of inexpensive homes. As
such, one cannot simply put maintenance into a standard ordinary lease
squares hedonic regression of house value.’’ (p. 196).
the presale sample using a two-stage regression: In the first
stage, a predicted CONQUAS score is derived for each project
in our sample using the score achieved for previous projects
by the same developer.22 The predicted scores are then used
as an instrument variable for construction quality in the sec-
ond stage regression.
The estimation results of the second stage regression
are presented in the last column (Model 10) of Table 6.
The results are consistently positive, indicating that con-
struction quality is an important determinant of selling
prices in the presale market. The evidence also indicates
that a developer’s commitment to quality construction in
a current project can be predicted from his previous pro-
jects. In sum, the regression results suggest that developers
can extract a price premium directly on quality homes, and
indirectly by gaining good reputation through a sequence
of consistently high quality projects.
22
The results of the first stage regression are not reported because they
are essentially similar to the correlation matrix (Table 4).
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138 135

Table 6
Estimation results on the impact of construction quality (by sub-markets).

Model 7 Model 8 Model 9 Model 10

OLS OLS OLS IV
Constant 12.73*** 12.19*** 12.98*** 12.47***
(378.6) (196.5) (482.6) (211.3)
AREA 0.00895*** 0.0105*** 0.00976*** 0.00974***
(31.39) (43.91) (27.94) (28.32)
AREA_SQ 9.02e06*** 1.01e05*** 9.64e06*** 9.29e06***
(10.70) (14.90) (9.382) (9.306)
LEVEL 0.00504*** 0.00558*** 0.00739*** 0.00642***
(16.24) (12.47) (27.29) (22.37)
LEVEL_SQ 7.63e06 1.23e05 4.92e05*** 3.41e05***
(0.771) (1.323) (6.301) (4.255)
FH 0.111*** 0.0647*** 0.160*** 0.149***
(37.50) (11.87) (80.78) (62.72)
CONDO 0.0438*** 0.0486*** 0.0672*** 0.0847***
(11.53) (8.825) (22.99) (20.56)
AGE 0.0215***
(56.82)
CBD 0.0384*** 0.0252*** 0.0286*** 0.0274***
(34.05) (12.10) (38.21) (32.80)
MRT 0.0156*** 0.0126*** 0.0112*** 0.0137***
(10.42) (4.063) (15.59) (15.38)
CONQUAS 0.00692*** 0.00607*** 0.00362*** 0.00224***
(25.45) (12.09) (19.31) (3.831)
Year dummy Yes Yes Yes Yes
Location dummy Yes Yes Yes Yes
Homebuilder dummy Yes Yes Yes Yes
Sub-market Resale Sub-sale Presale Presale
Observations 33,499 11,767 55,327 42,081
Adjusted R-squared 0.909 0.935 0.914 0.921

Models 7, 8 and 9 report the OLS regression results for the sub-samples of resale, sub-sale, and new sale, respectively. In the first three models, the original
scores are regressed against the development and market characteristics and the residuals are then used as the proxy for construction quality. Model 10
reports the IV estimation result for the sub-sample of new sales. The fitted values of CONQUAS in Model 10 are derived from the following equation
CONQUASi,di,i = b CONQUASj,d,t–k + e + x, where CONQUASi,d,t is the CONQUAS score of project i by homebuilder d completed in quarter t; CONQUASj,p,t–k is the
CONQUAS score of project j by the same homebuilder d completed in quarter t–k (k P 1, and k is the smallest possible number, such that j is the immediate
project preceding i); e is a set of fixed effect for developer. Note that the number of projects is reduced to 160 projects because projects of the same
homebuilders and completed in the same quarter are filtered out. White’s heteroscedastic robust t-statistic standard errors are reported in parenthesis.
***
Represents significance at the 1.0% level.

Although the premium attached to good construction
quality exists in all the sub-markets, Table 6 shows that
the premium is highest in the resale market. This interest-
ing result suggests that buyers who pay more for quality
homes in the presale market can recoup the premium
when they sell the units subsequently in the secondary
market. To probe this further, we examine whether there
is any significant difference in the investment performance
of good construction quality homes. This line of enquiry is
consistent with prior studies which found that houses do
not appreciate at the same rate due to their property attri-
butes, such as age, type and location (Smith and Tesarek,
1991; Archer et al., 1996; Smith and Ho, 1996; Clapp and
Giaccotto, 1998; Coulson and Lahr, 2005; Harding et al.,
2007; Bourassa et al., 2009; Ferreira and Gyourko, 2012).
5. Construction quality and capital appreciation
We employ a generalized version of the standard
repeat-sales model to estimate the house price apprecia-
tion for each pair of repeat sales in our sample. Archer
et al. (1996), Harding et al. (2007) and Bourassa et al.
(2009) employ a similar methodology to examine the
determinants of house price inflation over time. An advan-
tage of using the repeat sales approach is that it removes
any potential bias from unobserved apartment or neigh-
borhood characteristics that remain unchanged over time.
Specifically, the log-price change between two sale dates is
regressed on the property’s CONQUAS scores and a set of
control variables suggested by prior literature:
   
Ptþi Mkttþi 2
ln  ln ¼ a þ bi þ ci þ dPRIME
pt Mktt
þ lCONQUAS þ cPRESALE þ e ð2Þ
where pt and pt+i are the transacted prices at time t and t + i
respectively, and Mktt and Mktt+i are the market price indi-
ces at the corresponding time period. Thus, the dependent
variable in Eq. (2) is the difference between the price
change of a resale unit and the average price change in
the market. We also include the number of quarters
between the two sales, i, which captures age-related
depreciation, as well as its square term to reflect the fact
that houses depreciate at a non-linear rate (see Shilling
et al., 1991; Lee et al., 2005). The binary variable PRIME is
defined as units that are located in the prime residential
district. Finally, we incorporate PRESALE which is a binary
136 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138
Table 7
Descriptive statistics of repeat sales sample.
Variable Definition
RETURN_PA Market-adjusted house price change (annualized)
i Number of quarters between the two sales
PRIME Binary variable for unit in prime residential location
PRESALE Binary variable for pairs of repeat sales in which the first sale involves a presale transaction
CONQUAS CONQUAS score
This table reports the descriptive statistics for 23,843 pairs of repeat sales between 1998 and 2010. The holding period return for each pair is calculated as
the percentage price changes between the first sale and the second sale, after adjusting for changes in the house price index over the corresponding period.
Note that for the regression models, the holding period real returns are utilized. However, for reporting purpose, we report the annualized appreciation rate
for ease of interpretation.
variable, representing pairs of repeat sales in which the
first sale involves a presale transaction. This will allow us
to monitor whether investors earn superior returns by
buying new houses from homebuilders, or by buying exist-
ing properties in the secondary market. To the extent that
homebuilders time their new project launches to take
advantage of hot sentiment in the property market, we
expect the appreciation rate to be lower for PRESALE
properties.23
We are primarily interested in the coefficient l of CON-
QUAS, with the null hypothesis that the appreciation rates
of dwelling units are invariant with respect to construction
quality of the new homes; that is, prices of good quality
homes will move in tandem with the overall market.24 In
total, 23,843 pairs of repeat sales were identified over the
sample period with each pair representing two consecutive
sales of the same property.
Table 7 presents the summary statistics for our sample
of repeat sales. About 15% of the sample is located in prime
residential areas. For those who resold their houses, the
average holding period is approximately 5 years.25 The
average market-adjusted capital appreciation of resale
homes in our sample is 3% per annum, which is higher than
the 7% registered by the aggregate housing market over the
corresponding period.26 It should be noted that the mean
figures are skewed by a few observations that occurred
23
An alternative specification is to include the market average price
changes on the right-hand side of Eq. (2). The regression results are
consistent.
24
Smith and Ho (1996) contend that in the long run, demand shocks
trigger supply responses such that long-run real prices vary along the long-
run supply curve. They argue that unless supply constraints (such as land
use controls, building codes, and zoning regulations), or technological
innovation (such as systems building or increased prefabrication) system-
atically favor one stratum of housing and thus generate differently sloped
long-run supply curves for different valued housing, relative long-run real
prices will be invariant with respect to value.
25
This is consistent with Harding et al. (2007) estimates of just below
6 years for US homeowners’ time in the home. They also find the median
time between sales dates in their sample of 6841 repeat sales is 5 years.
Splitting our sample into two sub-samples according to whether the
property was brought directly from the developer in the primary market or
from the original buyer in the secondary market, we interestingly observe
that the average holding period of units in the first category is 5.9 years, as
compared to only 3.1 years for units in the second category.
26
The nominal annual capital appreciation of resale homes in our sample
is 10%, which is 3 percentage points higher than the 7% registered by the
aggregate housing market over the corresponding period. As noted by
Hendershott and Hu (1981), housing ownership is very much a leveraged
investment, and as such, can lead to higher rates of return than the
appreciation rates presented here. See also Pollakowski et al. (1991).
Mean Std. dev. Min Max
0.03 0.16 0.80 4.15
19.62 14.21 0.00 63.00
0.15 0.35 0.00 1.00
0.66 0.47 0.00 1.00
82.89 5.52 67.40 95.60
during the property boom in 2007. In particular, some
houses were quickly turned over with nominal price
increases of 30–60% within 3–6 months.27
The regression results are presented in Table 8. The first
two models are run on the full sample of repeat sales using
original (Model 11) and orthogonalized (Model 12) CON-
QUAS scores as proxies for quality. All the control variables
also behaved as expected. For example the coefficient of
age-related depreciation, as instrumented by the time
between two sales, is negative, indicating that depreciation
dampens price growth at a decreasing rate. Location also
appears to be an important determinant of house price
appreciation, as evidenced by the significant positive coef-
ficient for PRIME. Specifically, prices of houses located in
the prime residential districts rose faster than an otherwise
similar property in non-prime districts. We also observe
that houses bought directly from the homebuilders offer
a lower return to investors as compared to existing houses
that are bought in the secondary market. The lower return
is consistent with the notion that homebuilders, due to
superior information or stronger market power, are price
leaders in the housing market (Glaeser et al. (2008) and
Ooi and Le (2012, 2013).28
Focusing on the contribution of construction quality, we
find positive and statistically significant coefficients for
CONQUAS, indicating that good construction quality
homes registered higher capital appreciation, after control-
ling for market condition, age and location of the proper-
ties. The magnitude of the coefficient implies that for
every one point increase in the CONQUAS score, the capital
appreciation of an average apartment over a five-year
holding period would be $5279 more than the average
appreciation of the whole market over the same period. A
one standard deviation increase in CONQUAS score of
5.52, therefore, can improve the price appreciation of the
average apartment by $29,143 over its holding period,
which is typically 5 years. Overall, the relative investment
returns of houses with different construction quality indi-
cate a growing demand for houses with high workmanship
quality.
27
Our regression results are robust to the exclusion of these 82
observations.
28
Examining the spillover effects of infill developments on local housing
prices, Ooi and Le (2013) find a contagion effect which could be traced to
developers overpricing the new homes by 4.8% on average. In contrast, the
resale housing market is dominated by ‘‘amateurs’’, who trades infre-
quently and have less up-to-date information (see also Glaeser and
Nathanson, 2014).
 J.T.L. Ooi et al. / Journal of Housing Economics 26 (2014) 126–138 137

Table 8
The effect of construction quality on house price appreciation.

Model 11 Model 12 Model 13 Model 14

Constant 0.276*** 0.132*** 0.167*** 0.0642***
(15.88) (53.34) (35.16) (13.03)
i 0.00858*** 0.00927*** 0.0116*** 0.00288***
(34.12) (36.76) (20.91) (5.774)
i2 8.48e05*** 8.68e05*** 0.000123*** 2.51e06
(18.82) (19.11) (11.48) (0.265)
PRIME 0.0373*** 0.0478*** 0.0568*** 0.0368***
(11.79) (15.52) (3.800) (8.599)
PRESALE 0.0374*** 0.0296*** 0.0514*** 0.00561
(15.67) (12.43) (10.82) (1.285)
CONQUAS 0.00486*** 0.00260*** 0.00135** 0.00680***
(23.91) (8.889) (2.423) (11.80)
Sample All sales All sales Least expensive Most expensive
Observations 23,843 23,843 6448 5750
R-squared 0.236 0.219 0.246 0.10

Model 11 and Model 12 report the OLS regression for the full sample of repeat sales. Model 13 and Model 14 present the regression results for two sub-
samples of ‘‘least expensive’’ and ‘‘most expensive’’ homes, which represent the bottom and top 25% of all the resale homes. In all the models, the dependent
variable is the log-price change of the house over the two sales dates, adjusted for market returns over the corresponding period. The right-hand side
variables are the number of quarters between the two sales (i), the number of quarters between the two sales squared (i2), a binary variable for units located
in prime residential districts (PRIME), and construction quality (CONQUAS). In Model 11, the original CONQUAS scores are employed. In Models 12, 13 and
14, the orthogonal CONQUAS scores are employed. This involves regressing the original scores against the development and market characteristics and
using the residuals as the proxy for construction quality. White’s heteroscedastic robust t-statistic standard errors are reported in parenthesis.
**
Represents significance at the 5.0% level.
***
Represents significance at the 1.0% level.

The housing literature has also recorded differences in
the appreciation rates of high and lower value homes
(see Smith and Ho, 1996; Smith and Tesarek, 1991). We
therefore turn our attention on the impact of construction
quality on house price appreciation for two sub-samples of
‘‘least expensive’’ and ‘‘most expensive’’ houses, which is
defined as homes in bottom 25 percentile and top 25 per-
centile based on their original sale price, respectively. The
results, which are reported in Table 8 under Model 13 and
Model 14, show that our earlier results are robust. More
importantly, the positive impact of construction quality
on price appreciation can still be seen in both sub-samples.
Comparing the relative magnitude of the CONQUAS coeffi-
cients in the two models, the effect of construction quality
is three times bigger for the sub-sample of ‘‘most expen-
sive’’ houses. This implies that the marginal effect of
improvements in construction quality on the rate of house
price appreciation is larger for more expensive properties.
results also clearly suggest that the prices of houses that
are well constructed in the beginning appreciate at a sig-
nificantly higher rate than the prices for average quality
house in the market. This is also empirically supported
by our findings that the CONQUAS premium is highest in
the resale market. Interestingly, we also observe that
homebuyers in the presale and sub-sale markets are will-
ing to pay for good construction quality even before the
project’s completion.
The combined results appear to suggest that although
houses with good workmanship cost more to homebuyers,
they also offer higher prospective returns in terms of cap-
ital appreciation to the investors. The significant premium
and price appreciation associated with construction qual-
ity also imply that the housing market may not need gov-
ernment intervention to encourage the developers to build
better housing. However, data on construction and mainte-
nance cost are needed to empirically determine the elastic-
ity of each effect.

6. Conclusion
This study contributes to the literature by examining
the relationship between construction quality and house
prices. Using Singapore as our case study, we are able to
circumvent most of the empirical problems that plague
past studies and this paper serves as the first to explore
the issue further.
Our empirical analysis is based on a unique dataset
comprising 100,593 sale transactions in 205 private resi-
dential developments completed in Singapore between
1998 and 2010 matched with the construction quality
score for each development. We found that buyers pay a
significant premium for good workmanship quality. The
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