Constructing a House Price Index for Saudi Arabia

Abstract

House price movements have a significant influence on the economy. These movements can dramatically affect household wealth and shift consumer spending. Unfortunately, the house price index development in Saudi Arabia is fragile, and data quality suffers from severe errors due to administrative negligence. Therefore, the k-means clustering algorithm technique was used to correct these errors and appropriately redefine the property type. This study attempts to overcome these severe errors to improve transparency and support literature in the Saudi Arabian real estate market as well as the Middle East and North African real estate markets. I compared the official real estate price index of the General Authority for Statistics GASTAT with the proposed mix adjustment and repeat-sales index I constructed from the same transaction data. I conclude that there are considerable concerns regarding the GASTAT index’s credibility and accuracy. This study is the first attempt to construct sophisticated indices for Saudi Arabia on citywide and national levels. I also provide stratification and repeat sales indices for Saudi Arabia. They illustrate the real estate business cycle for the first time and adequately measure the pure house price movements in Saudi Arabia.