INFORMATION FOR THE REAL ESTATE MARKET EFFICIENCY AND TRANSPARENCY The Italian Experience

Transcription

1 INFORMATION FOR THE REAL ESTATE MARKET EFFICIENCY AND TRANSPARENCY The Italian Experience Workshop Cadastral and real estate registration systems: Economic information for real estate markets in the UNECE region Gianni Guerrieri Director Real Estate Market Observatory and Appraisal Services Rome, May 5, Rome, May 5, 2011

2 A THEORETICAL FRAMEWORK Neoclassical Theory: the information problem is represented by scarcity of the goods - The standard competitive equilibrium model can resolve a particular information problem regarding scarcity. The decentralized price system leads to the efficient allocation of scarce resources. - Prices include the relevant information - In this model information is not a problem Rome, May 5,

3 A THEORETICAL FRAMEWORK The Economics of Information: Nobel Prize winner for Economics Joseph Stiglitz is the most representative of this theoretical approach - Stiglitz states: Besides information about scarcity, there are many other problems of information that arise in an economy. Employers want to know about the productivity of their workers, their strengths and weaknesses; investors want to know the return on various assets in which they might invest; insurance companies want to know the likelihood that various people they insure might have an accident or get sick. These are examples of selection problems Rome, May 5,

4 A typical example: insurance market A THEORETICAL FRAMEWORK expected profit increase Insurance company : + premium + profit increase profit profits I T 2010 II T 2010 III T 2010 IV T 2010 I T 2011 II T 2011 Unsatisfactory results: decreased profits reduced profits I T 2010 II T 2010 III T 2010 IV T 2010 I T 2011 II T 2011 profits Why? Customers who do not renew their policies are the ones less likely to suffer the negative event that is insured. The consequence is that the insurance company may not derive as much economic benefit as expected from the higher cost of their premiums because, by increasing the number of insured under higher-risk policies, reimbursements might increase. Rome, May 5,

5 A typical information problem: information asymmetries A THEORETICAL FRAMEWORK - Information imperfections are pervasive in the economy [ ] asymmetries of information.[ ] exploring the implications of the fact that different people know different things. (Stiglitz) Rome, May 5,

6 A THEORETICAL FRAMEWORK Three main assertions in the theory of information economics: the price system does not include all the necessary information that comes into play in economic decision-making; in many situations, deficient or incomplete information underlies market failures and, in any case, is a cause of market inefficiency; information is a good that is fundamentally different from other goods and cannot be produced efficiently through market mechanisms. Rome, May 5,

7 A THEORETICAL FRAMEWORK Information is a good that is fundamentally different from other goods. Again in the words of Stiglitz possesses many of the properties of a public good its consumption is nonrivalrous, and so, even if it is possible to exclude others from enjoying the benefits of some piece of knowledge, it is socially inefficient to do so; and it is often difficult to exclude individuals from enjoying the benefits. [.]. A piece of information cannot be purchased like a chair. An individual can look at a chair and ascertain its properties before purchasing it. But if the seller of information tells the information that he wishes to sell to the buyer (before he has bought it), there is no reason that the individual will pay for it For this and other reasons markets for information are inherently characterized by imperfections of information concerning what is being purchased; and mechanisms like reputation which played no role at all in traditional competitive theory are central Rome, May 5,

8 REAL ESTATE MARKET H. DE SOTO: primary information In a well-known book (The Mystery of Capital), Hernando De Soto indicates that a good s ability to transform itself into capital and thus to become fungible in an economic system as a potential creator of development can be found in the formal representation of property ownership. However, this formal representation, is nothing more than a form of information certifying that a given good belongs to a particular subject. But it is only one form of information. Other information is also important: Rome, May 5,

9 Other information: legal and planning-related information technical information economic information REAL ESTATE MARKET The general issue is so how to be able to reduce the informative asymmetries to make the market more efficient. Information problem: - macroeconomics - microeconomics Rome, May 5,

10 INFORMATION MACROECONOMICS Financial crises Speculative bubbles Real Estate bubbles : two great crises - Japanese real estate bubble Japanese real estate bubble At the end of the 1980s, the growth in asset values, both stock and real estate, caused monetary and credit expansion, which among other factors led to a process of intensified bullish expectations. Rome, May 5,

11 INFORMATION MACROECONOMICS - USA real estate bubble (subprime mortgages) 250,00 S&P housing proce index USA Existing Home Sales (000s, saar) 200,00 150,00 100,00 50,00 0,00 gen-00 lug-00 gen-01 lug-01 gen-02 lug-02 gen-03 lug-03 gen-04 lug-04 gen-05 lug-05 gen-06 lug-06 gen-07 lug-07 gen-08 lug-08 gen-09 lug-09 gen-10 lug-10 gen-11 House prices: ,85% % Rome, May 5,

12 INFORMATION MACROECONOMICS Lack of macroeconomic indicators for the real estate market Indispensable information set for controlling general macroeconomic conditions - European Central Bank (price index heterogeneous data) - EUROSTAT (housing price index ) HOUSING PRICES ALONE ARE INSUFFICIENT INDICATORS OTHER STATISTICS AND INDICATORS ARE NECESSARY Rome, May 5,

13 INFORMATION MACROECONOMICS number of housing units bought and sold (new and existing); amounts bought and sold (expressed in square meters); existing housing stock; relationship of the number of homes bought and sold to existing stock; the number of purchasers and their main characteristics (age, gender, income and available housing stock); type of financing, distinguishing amounts deriving from self-financing and those from debt, detailing the loans in terms of the type of collateral provided (purchased housing, other property, other collateral) and qualifying other forms of financing; a similar set of indicators for the non-residential sector, particularly for the most common uses (shops, offices, industrial warehouses). Rome, May 5,

14 INFORMATION MICROECONOMICS Appraisal of real estate assets - at the base of a pyramid which allows credit to be provided or allows the values of assets in a real estate fund to be brought up to date Adequate information is necessary for appraising real estate with any given procedure. lack of information lack of transparency uncertain appraisals Increased risk (credit, real estate funds etc) Rome, May 5,

15 Needed information INFORMATION MICROECONOMICS Availability of data regarding real estate transactions in a given geographical area Availability of transaction prices Availability of rental costs Availability of the technical characteristics of the property (area, building type, state of repair etc) Availability of marginal prices of the different characteristics Availability of legal information (planning constraints, liens etc) Rome, May 5,

16 Needed information INFORMATION MICROECONOMICS Problem solving by market or by State? I think that is necessary to guarantee independence methodological uniformity reputation separation between producer and user of information (brokers, appraisers etc.) Rome, May 5,

17 GLOBAL TRANSPARENCY INDEX Jones Lang Lasalle creates GRETI Global Real Estate Transparency Index Source: Jones Lang Lasalle Rome, May 5,

18 GLOBAL TRANSPARENCY INDEX GRETI 2010 for sub-index and world region Global Americas Europe Asia Pacific Performance Measurement Market Fundamentals Listed Vehicles Regulatory and Legal Transaction Process MENA Region Average score 2008 Average score 2010 Change Asia Pacific Middle East & North Africa Europe Americas Global Source: Jones Lang Lasalle Rome, May 5,

19 GRETI 2010 for Europe High transparency United Kingdom Sweden Ireland France Netherlands Germany Belgium Denmark GLOBAL TRANSPARENCY INDEX Source: Jones Lang Lasalle Rome, May 5,

20 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY Improvement of information on the real estate market in Italy ( GRETI ) Italy has improved its Jones Lang LaSalle transparency rating, which has jumped from 2.82 in 2001 (23rd out of the 51 nations considered) to 1.89 in 2010 (21st out of the 81 nations considered). One of the reasons is the role played by the Real Estate Observatory of Agenzia del Territorio Observatory mission : contribute to the transparency of the real estate market; provide support for the Agency s assessment activities; improve cadastre and real property databases for statisticalinformational purposes Rome, May 5,

21 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY REAL ESTATE MARKET OBSERVATORY production of statistics regarding the real estate market starting with the cadastre and real property and financial administration databases in general (started in 2001); management of the real estate price database (launched on January 1, 2004) which required a gestation period of approximately three years for its design and testing. Rome, May 5,

22 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY Residential real estate report: geographical and sectorial analysis regarding number of residential units sold and distribution of housing stock, price indices, mortgages (annual) Quarterly Notes: quarterly update of the number of property sales, mortgages and real estate prices (quarterly); Banca d Italia, Agenzia del Territorio, Tecnoborsa Survey (quarterly) Report on non-residential property: for the most important segments (shops, offices, warehouses (annual) Observatory Database Handbook Regional reports: twice yearly analyses of 15 cities and their provinces Cadastral Statistics: annual report on the real estate units surveyed by the cadastre Rome, May 5,

23 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY Query result: 2010 June-December Province: ROME City: ROMA Zone: Central/PIGNA (VIA DEL PLEBISCITO) Zone code: B6 Cadastral micro-zone n.: 1 Prevalent typology: Residential Use: Residential Typology State of repair Market value ( /mq) Area (G/N) Rental value ( /mq x month) Area (G/N) Min Max Min Max Residence NORMAL G 25,8 36,3 G Box NORMAL G 27,8 36,5 G Covered parking NORMAL G 21,3 29,8 G Open-air parking NORMAL G 13,5 17,3 G Key STATE OF REPAIR in capital letters refers to the most prevalent in the ZONE Rental value is expressed in Euro/sqm per month for net (N) or gross (G) area For the COMMERCIAL (shops) typology E/N/D (excellent/normal/decay) is understood to refer to the commercial location and not to the state of repair of the property unit. Rome, May 5,

24 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY The key steps in reaching these results are: division of the cities into areas that are as homogeneous as possible in terms of the housing (or prevalent) market; conducting the survey of economic data for individual real estate units; processing of this data; validation and publication. Rome, May 5,

25 ITALIAN EXPERIENCE: REAL ESTATE MARKET OBSERVATORY REAL AGENZIE ESTATE IMMOBILIARI AGENCIES 22,8% PUBBLICAZIONI REAL ESTATE PUBLICATIONS IMMOBILIARI 5,0% INFORMAZIONI DIRECT AGENCY INFORMATION DIRETTE STIME ESTIMATES AdT 5,7% 2,3% OTHER ALTRO 4,8% ATTI DI COMPRAVENDITA TRANSACTIONS Rome, May 5, ,3%

26 IN CONCLUSION a) reinforce the availability and accessibility of economic information on the real estate market b) production of information regulated by public authorities or produced directly by a public entity Rome, May 5,

27 IN CONCLUSION c) verify the level of information that the management bodies of administrative real estate data - such as the Cadastre or the Real Estate Registries are able to generate for the transparency of the real estate market. In this sense, work could be done to standardize a core of information, initially limited, that would be useful for the macro-economic knowledge of the real estate market. The European statistical system could ensure the collection and availability of this information. d) discuss the necessary minimal conditions for the availability of information that can render the principles of appraisal practice operationally concrete. Rome, May 5,