The Need to Improve Global Real Estate Data

Brian Sturgess - September 2013


Real estate is an asset that is talked about far more than it is analysed. The cause of media interest is obvious. Property represents the major portion of household wealth in most countries and real estate is a significant proportion of total corporate assets. It is also an asset frequently used as collateral for other personal and corporate transactions so there important interconnections between the value of property and the demand for credit in an economy. The macroeconomic importance of studying property cycles in terms of the causes of asset bubbles, economic booms, financial crashes and the business cycle has attracted many country focused studies of the economics of the sector, but no general theories. Until recently, the dynamics of property prices and the timing of booms and busts differed considerably between sectors (residential, commercial, retail, industrial, etc.) and between regions and across countries. There is evidence now, however, of increasing globalisation in real estate markets. Barkham (2013) has noted the first decade of the twenty first century saw the first co-ordinated global boom and bust in this asset class. 

The important, albeit complex, relationships that exist between property prices and the level of nominal aggregate demand in an economy makes monitoring property prices an important barometer for monetary authorities. Not only is real estate spending an important part of investment, but the value of property holdings influences consumer spending through real wealth effects. Indeed a recent useful contribution by Drehmann et al (2012) has suggested that combining property prices with credit information provides the best means of explaining financial cycles and providing leading indicators of the dangers of banking crises when lending is behaving outside of historical trends.

 


The Neglect of Real Estate Data

Despite the importance of monitoring the real estate sector to policy makers discussing the state of real estate statistics Borio (2013) notes:

“And yet, available statistics are extremely poor. The series are generally limited in coverage and granularity, their extension back in time is gravely inadequate, and consistency across countries is a serious problem. “[1]

The G20 has recommended that the lack of reliable real estate data is a significant problem that needs addressing and many countries have assigned a high priority to filling this gap. The Bank of International Settlements (BIS) in Basle has called for better data on transaction activity and prices in real estate markets both residential and commercial across the world. The BIS has been acting as a “catalyst”[2] in this process and is leading work on 8 out of 20 of the recommendations on better financial statistics pursued under the wing of the G20 alongside the Financial Stability Board and the International Monetary Fund (IMF). Indeed the BIS has considered the importance of property markets in some detail since the publication of its 60th Annual Report in 1990[3] began comparing residential and commercial property prices with equity prices as part of a process of creating composite asset price indices. 

Currently the BIS, with the assistance of its member central banks, disseminate property price statistics on its website from 46 countries with the data available at different frequencies. [4] The quality of the data differ significantly from country to country, for instance in terms of sources of information on prices, type of property, area covered, property vintage, priced unit, detailed compilation methods and seasonal adjustment. The BIS has organised conferences and has assisted in the formulation of standards to improve the quality and comparability of property price data, but it disseminates and does not produce the data and unlike banking statistics it has no direct access to the compilers of the data.  This means that there are a large number of gaps and while for the limited number of mainly developed countries covered by the BIS portal so far the most significant progress has been made in the compilation of data series on residential property while “statistics for commercial property are lagging badly behind.” [5] This is unsatisfactory particularly since while some national statistical authorities have made efforts to produce residential property price data series they have relied heavily on private sources for commercial property prices.  

 

The importance of good data to the investment decisions of the large number of listed and unlisted property companies, banks and financial institutions active in the commercial property sector has provided an opportunity for a number of research companies providing both price data broken down by segment and benchmark data on investment returns for use by property fund managers and investors. But while there is an abundance of data provided by companies such as Investment Property Databank (IPD)[6], much of this private data on commercial property values is fundamentally flawed since it is based on assessed value, not transaction value, by surveyors. The result is smoothed value inflation during normal growth periods with overreactions in booms and crisis.

An enormous data gap that urgently needs addressing is the lack of real estate price indexes covering emerging markets. Of the 46 countries where the BIS provide data on property prices, 33 are OECD members. Some regions are poorly covered particularly South America where real estate price data is only provided on Brazil, Africa with only South Africa and Morocco are covered and Asia, with only China, Hong Kong Indonesia, Malaysia and Thailand covered. Emerging Europe is better covered with property price data disseminated by the BIS for Bulgaria, Croatia, Latvia, Romania and Russia.

 

References

Barkham (2013), Evaluating the First Global Real Estate Bubble, World Economics, Volume 14 (3), July-September, pp.5-41.

Borio, C. (2013), The Great Financial Crisis: setting priorities for new statistics, Monetary and Economic Department, BIS Working Papers, No 408, April.

BIS (1990): 60th Annual Report, Chapter IV, “Property Markets”,

Drehmann, M., Claudio Borio and Tsatsaronis, K., (2012) (Characterising the financial cycle: don’t lose sight of the medium term!, BIS Working Papers, No 380, June.



[1] Borio (2013) p4.

[2] Borio (2013)p9.

[3] BIS (1990)

[4] In disseminating these statistics, the BIS and its member central banks are following up on Recommendation 19 in the Report on "The Financial Crisis and Information Gaps" submitted by the Financial Stability Board and IMF to the G20 Finance Ministers and Central Bank Governors. The data is available at: http://www.bis.org/statistics/pp.htm

[5] Borio (2013) p9.