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.