There’s no lack of property-specific data or information out there. In the blink of an eye – and occasionally after parting with a few dollars – you can locate capital growth information for states, cities, suburbs, streets and individual houses, auction clearance rates, number of properties sold, vendor discount rates, rental yields, vacancy rates and demographic information.
However, this increased availability and speed of data also brings with it new challenges – not least in terms of how to make sense of the tidal wave of information.
Investors also have to decide which of those figures to trust. Take a look at the reports of three of the top providers of such data – Australian Property Monitors (APM), Residex, and RP Data – and one will find very different figures on most property statistics.
But there’s a reason for that disparity in housing statistics, and it’s not because one provider is more accurate than another. Major providers such as APM, the Real Estate Institute of Australia (REIA), Residex, and RP Data, get many of their numbers from the same source – the Australian government. However, it’s what they do with those numbers and how their statisticians choose to analyse them that causes one figure to be higher or lower than the other.
“The reason there’s a difference is quite simply that we’re measuring different things,” says John Lindeman, former head of research at Residex. “I’m not saying anybody is right or wrong. But if you measure something one way, you’ll get a different result than if you measure it another way.”
Sorting the data - differently
Each of Australia’s property data providers have plenty of reasons why their data is most reliable or accurate.
Take the example of assessing the median price for a suburb. This is one of the key measures in real estate, as it not only gives an indication of affordability but also feeds into price growth. Having this information for whole suburbs is useful for investors in selecting suburbs that are ripe for growth – or may have passed their prime.
Each major provider assesses median house price differently, however. The different methodology can be as simple as just plucking out the 50th percentile of all sales in an area, as used by the REIA. The ABS and APM use a stratified median – which divides all postcodes into ten ‘baskets’, ranked by their median price from high to low, and derives the median price derived from this (which can be different to the median of all sales). It’s worth noting, however, that the ABS excludes units and townhouses while APM includes them.
RP Data uses a ‘hedonic methodology’ which uses attributes such as land size, number of bedrooms, number of bathrooms as well as a range of property attributes in order to determine the ‘value’ of a property if it were to sell as at a particular date.
Residex, meanwhile uses a combination of Residex uses a combination of repeat sales statistics with hedonics –measuring the historical sales differences in a certain home, while considering other attributes such as bedroom and bathroom count, and if those have changed.
So, if they’re all calculated differently, what use do they have? RP Data’s Cameron Kusher says medians do provide an indication of how the market has performed over time but this analysis is on a broad scale and not specific and should only be used as a guide.
Indeed, medians can give you a quick crude feel for the cost of the homes being purchased in the market. However, they are not very useful for measuring house price growth rates because medians are affected by a range of factors, such as:
- Different buyer types who happen to be dominating the market. First timers tend to buy properties in the lower end price bracket, hence dragging the median down while upgraders are likely to buy more expensive homes, which pushes prices up.
- Changes in the types of homes built over time. If smaller homes are built over time, median may fall because they are lower priced, conversely, if bigger homes are built over time, the median may rise suggesting house prices have appreciated, when in fact they may have not.
- Renovations. If homes are renovated, this can push the median up when capital growth rates have actually been unchanged.
- The liquidity of different geographies. If more Western Sydney homes transact than Eastern Sydney homes, the median may fall when house prices could have been rising.
“Investors should treat the information exactly as it is: a benchmark, a guide and nothing else,” says Kusher. “It provides an excellent wrap up on a macro level but it tells you very little about the performance of individual properties.
“Use it to understand how the macro market is performing and then do your own research and analysis to determine what is occurring in your own market.
Look at what’s selling, how much it sells for, the quality of stock and visit as many open homes as possible.”
“No holy grail”
That’s the rub, says Andrew Donnelly, director of property research and investment firm Braxton Chase. He argues that, no matter how good any one provider is, an investor should never put their full trust behind any one statistic.
“Investors need to realise that there’s no holy grail,” he says. “There’s no single report that’s going to guarantee you success in the market. “Plucking out one or two average or median figures and using them to describe the market broadly is futile.”
Donnelly adds that, while statistics are valuable, those property numbers should always be put in a broader context. Investors need to do their homework by taking in more than one source of information.
John Lindeman agrees.
“I think it’s always important to look at trends, never look at a figure in isolation. Watch what’s happening over time, because that will tell you where your suburb is heading,” he says.
Vivian Chan of APM also advises investors to look at the last five years at least to make sure that the area has achieved consistent growth, has good returns and also has potential for future capital growth. “Property investment shouldn’t be short-term because, unlike the share market, it takes longer to liquidate. So it should definitely be seen as a long-term investment.”
Of course, the bigger picture also includes how the economy is performing as a whole – both at a national and local level – and how the economic outlook drips down to the property market. RP Data takes this seriously, with research director Tim Lawless emphasising that its reports are “not just about providing data, but also showing what its relevance is”.
“In this current environment, the market is just so hungry for information,” he says. “One of the key things we are doing now is making sure people understand what’s happening in the marketplace.”
Do it yourself
However, despite the best efforts of all involved, no property data can ever be perfect. That’s because no single property is the same as another, and each one is constantly changing due to immeasurable factors.
“It’s always good to take a couple of steps back from what you’re reading in the media and look at the basic fundamentals in the area being considered for investment,” says Donnelly. “If demand is going to outstrip supply, then it’s going to be a good investment.”
There’s no argument that overall statistics can be a good indicator as to finding good investment properties: indeed, the information high-level data provides can be invaluable in identifying the next hot spots, and it’s well worth getting to grips with what they mean. However, once you get beyond a suburb level and actually begin selecting streets and properties, there’s simply no substitute for getting your hands dirty and researching the nitty-gritty of an area yourself.