How much is your house worth? Who knows?
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For many Australians, the vast majority of their assets consist of their primary residence or investment properties. Treasury estimated in 2006 that 55% of net private sector wealth consisted of “dwelling assets”, with the figure far higher for the middle class (the uber-wealthy tend to own much of their assets in the form of “income producing” business interests). Despite the importance of dwelling assets to many Australians, there is no accurate and transparent body which provides historical price information about property to investors or home-owners. Unlike publicly traded companies (who generally trade on the ASX), price data regarding residential property is generally provided by real estate bodies, such as the Real Estate institute of Victoria or New South Wales. As Crikey revealed recently, the accuracy of such data provided by real estate bodies is questionable, being produced and reported by real estate agents who themselves have a significant vested interest in disclosing minimal information and overly positive results. Investors who wish to purchase a claim to the assets of a public company (such as Telstra or BHP) in the form of a share have a great deal of information at hand which allows them to make a fully informed decision. Specifically, the Corporations Act requires public companies to disclose large amounts of information including income statements, balance sheets and other price sensitive data. The ASX requires continuous disclosure of all information which would have a bearing on the price of the shares and also provides complete historical price data information for investors. Property investors (and householders) are afforded no such luxuries. It is very difficult for property investors to obtain historical price information (in Victoria for example sophisticated investors are required to pay for historical price data or even use the REIV’s very limited service. However, not only is obtaining such information expensive, but the user has to rely on data supplied originally by real estate agents which, as noted, may not be entirely accurate — largely because agents have a tendency to fail to report non-sales. The information vacuum is exacerbated by the actions of real estate bodies such as the REIV, who have gone to great lengths to shrewdly retain their monopoly with regard to house price data, especially in relation to its public dissemination in major broadsheet newspapers. As Crikey reported back in September 2006, the former head of Australian Property Monitors, Louis Christopher, was suspended by Fairfax (which is the 100% owner of APM) after daring to criticise the accuracy of price information provided by the REIV. At the time, Christopher shrewdly noted that the REIV actively reduced the “level of bad news in the market place by controlling the information provided to the media” and then sought to make “a profit out of the data by reselling it back to real estate agents.” As Crikey noted in December, when compiling its auction results the REIV conveniently ignores auctions with no reported result, which has the direct effect of artificially inflating the “clearance rate”, providing an overly optimistic view of the property market to potential purchasers and vendors. APM also found in recent years that the REIV double-counted ‘sold’ results from previous weeks, a tactic that is allegedly still occurring. While the current system is clearly inadequate, what can be done? For a start, collection and production of data should be conducted by an independent, possibly state-based government body. The body (like the ASX), should be answerable to ASIC. The public body should provide all real estate results online and be free for users, in the same manner that historical and current share price information is freely available on the ASX website (for example, the website should list every auction or private sale, and in the case of auctions, the result and whether a vendor bid was submitted). To ensure that all data is collected, real estate agents must be compelled by law to provide all data, not only the positive results. Failure to provide so much as one auction result (or non-result) would lead to immediate suspension of the right to continue as an agent. A freely available, wide-ranging and complete property database is essential to maintaining a transparent and efficient property market. The current situation, which allows self-interested real estate agents to be the only conduit of price information has created an environment in which many Australians are spending the majority of their wealth on an asset which they know very little about. |
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9 Comments
Dennis,
I think I clearly said that free data would be great.
My key point in the post was that much of Adam’s article is factually flawed.
His intent is, however, commendable.
It would have been much better though if he could have accurately represented the state of play with regard to residential data in this country (it is not hard — there are a number of RBA studies on the subject) and then advocated improvements to the existing infrastructure.
Nice work Adam.
Giving real estate agents any pivotal role in developing meaninful data is like giving the fox the keys to the chicken shed.
As someone who worked for short time as a strategist for the real estate industry in NSW ( I left ‘cos I wouldn’t take part in the vacuous misrepresentation of data to the market), I can vouch for the fact that it is run by underqualified, overconfident sales people, who never let the facts interfere with a good story.
Louis Christopher was a brave man to take on Fairfax……for such an important sector of the economy to suffer regular gross exageration of market data, is a political disgrace in all Australian jurisdictions.
Chris Joye…you’re one of the problems old son…
There are also problems with the timeliness of the VG data: different VGs publicly release the data with different frequencies. The VG data is typically available 60-90 days after settlement. But you can easily access the data from the infomediaries after this point (at a price).
Ideally, as you suggest, the real estate agents would also be forced to report their sales data on the date of exchange. To some extent this already happens: RP Data collects sales information directly from the agents in advance of the VG sending it through, as do other companies.
I do agree with you that it would be better to compel agents do immediately report this information as a first point estimate in advance of the final VG information.
Anyway, you need to do your homework before you write articles like this.
Chris Joye,
The point is - how much is your investment or prospective investment worth according to recent market fluctuations? High quality, unbiased granular data is only available at a cost, which may or may not be out of reach for many homeowners or investors. Most freely available data is headline figures - not a great help. Information for listed companies however is freely available.
So while the ABS provides good quality indices (as well as the broader one from APM, Residex and RPData), this doesn’t help the person who wants to know what the price trends are for 4 bedroom houses in Glenroy, Vic. Or nearby Oak Park.
Given the aggregate size and importance of the Australian housing market, would it not be beneficial to make these data freely available in the manner it is provided for shares? Given that the market’s entire value is many multiples of the ASX, one would presume, yes.
Cheers.
Did Adam Schwab recently end up on the losing side of a bad real estate transaction? Or is he a jaded, would be property owner who missed the last rush and is now haunting the boards at globalhousepricecrash.com? It makes me shake my head at these people who continually bleat bearishly about the state of Australian Housing. We are not the US or UK. It is completely different. Buying a home has never been easy, not in my parents day, and now, they come complete with gardens, floor coverings and curtains, built in robes, you name it - of course they are more expensive.
A home is worth what someone is willing to pay for it. It’s that simple. So long as people are willing and able to shell out X amount of dollars for a property the price will remain at this. Property is very difficult to place a ‘specific’ value on as each home is different, has features, views, locations etc which are unique.
Adding to the conundrum is what one person may deem perfect, another may think is terrible. With this in mind a ‘centralised property database’ is a cold socialist way of setting a ‘value’ for a property and making those who would buy it adhere to it.
So long as banks and lending institutions continue to lend the money, people will continue to pay these amounts for houses. Believe me I’m there right now as I have recently offered a bit more than I wanted to for a place I fell in love with. No matter what the ‘database’ may have said, to get it I still would have done it again.
Chris
You make a valid point that the there is a valuer general in each state obtaining data, plus you have companies like your partner company, RP Data collecting and selling sales transactions at a relative affordable price.
However things are very different in Victoria. The Victorian law is that the general public is not allowed to get precise individual transactions, which identify the street number sold. Only real estate agents can have access to that government supplied info.
And worse, the lags on Victorian data supplied by guys such as Landata have huge lags. It is much more that the 60-90 days you suggest. Try over 180 days and that’s just to get to the top of the bell curve.
So if the Victorian public want timely individual sales information including a precise street address, they can only get it sourced from real estate agent reported data, even while it maybe via bodies such as APM or RP.
And that’s where the problem arises and why accurate auction data is important. Unfortunately in Victoria, it appears they are receiving incomplete information and worse; the data being published in mastheads such as The Age and The Herald Sun are coming from a body that aggressively represents real estate agents. There are some obvious potential conflicts of interest in having bodies report on real estate data that also have vested interests in seeing buoyant housing markets.
And this is the real point of the story.
I am also not sure you can say RP has the largest database of auction results Chris. I am sure the guys at APM would think that is an inaccurate claim given they have been collecting auction results since 1988!
Black Dragon,
I take your point, but the fact remains that all sales data is collected by the VG — contrary to what the article says — and you can get it (albeit not for specific properties). Furthermore, you can use this data at an aggregated suburb, postcode, SsD, or SD level to work out what is happening to house prices…
I do agree with you/Adam though that there are some Vic-centric issues that need to be resolved.
On auction clearance rates, you might be right about the old time-series data. Yet based on the numbers that I see RP Data’s coverage today is substantially superior, which is what we really care about.
Chris
Adam, this article is quite inaccurate.
First, there are already precisely the bodies you call for collecting all residential sales data in Australia: the State-based Valuer Generals offices, which gather data on every single residential property transaction executed in Australia. In fact, Australia is quite unique in this regard insofar as all residential property sales data is collected by governments. In other countries they do not collect the ‘population’ of sales data and have to rely on small samples. For example, the S&P Case Shiller Index in the US only covers about 60% of all US regions. A very senior executive of the RBA recently said to me that they think Australia has the best house price data in the world…
All residential property sales data is then sold by the VGs to a number of key information providers, including APM, RP Data, and Residex.
You can buy all of the sales data you want for any region in Australia going back many years from any of these companies. Yes, the data is not free—so you may have a point in that regard.
You also fail to point out that the VG data is collected by the ABS which, alongside, APM, RP Data and Residex, publishes sophisticated house price indices for every capital city and the national market. APM, RP Data and Residex make these indices available on a monthly basis while the ABS report quarterly. The RBA itself has been involved in the design of these indices.
If you want higher resolution regional indices you can also buy them from any one of these companies. Importantly, these indices effectively include all residential property sales transactions unlike their equivalents in foreign markets.
Now the system is not perfect: for example, as you note, auction clearance data is not collected by government agencies and is therefore mixed. RP Data has the biggest auction database in Australia and covers a fair chunk of the market.
Continued…
Re: “A freely available, wide-ranging and complete property database is essential to maintaining a transparent and efficient property market.” I absolutely agree with Adam Schwab - ‘How much is your house worth?’. It would be nice to have real estate agents compelled by law to provide accurate data to a government body and have that data distributed freely.
Until that time, why can’t the office that handles the stamp duty provide details of the all the sales where stamp duty has been paid and make that information available online for up to ten years on each property after each sale?