For more than a year, Israelis have been told that the Ministry of Finance has been leading a campaign to consolidate and improve real estate data. The Israel Tax Authority, Israel Land Authority, the ministry's Government Revenues Authority and Budget Division, the Bank of Israel, the National Economics Council, the Ministry of Housing and Construction, the Central Bureau of Statistics, and the Government Assessor are participating in this campaign. Now, however, a top official involved in the effort has told "Globes" that the campaign has pretty much ground to a halt since Haim Shani quit as director general of the Ministry of Finance.
If there was any need to add fuel to the real estate data fire, last week, for the first time, the Ministry of Housing published its own survey of home prices, which included both new and second-hand apartments. The monthly survey joins the monthly and quarterly surveys by the Central Bureau of Statistics, the Ministry of Finance, and the Chief Government Assessor at the Ministry of Justice.
In addition to the conflicting official reports, politicians also make inaccurate statements, to put it mildly. As "Globes" revealed, statements by Prime Minister Benjamin Netanyahu and Minister of Housing and Construction Ariel Atias that an average of 96 monthly salaries are needed in OECD member states to buy a home, compared with 130 salaries in Israel is fictitious. The OECD has no such data; it publishes changes in nominal home prices in member states, but does not compare prices with salaries.
The challenge of measuring home prices confounds economists worldwide, given that no two homes are exactly alike, as they differ in region, floor space, floor in an apartment block, wind direction, building standards, and so forth. Economists debate whether to use real or nominal prices, to rely on tax figures or price indices, and which statistical methodologies to apply.
The quarterly rankings of key global real estate markets by "Global Property Guide" mentions the following qualifier about its methodology: "One reason for poor statistics, is that governments normally use house sales to collect taxes. Individuals therefore have strong incentives to under-report sale prices. Most statistical bodies in developing countries realize this, and sensibly do not attempt to collect property price statistics. The Global Property Guide believes that in most developing countries it is better to use offer-for-sale and offer-for-rent prices." As for Israel, it uses average prices of owner occupied dwellings compiled by the Central Bureau of Statistics.
BDO Ziv Haft economist Moti Dattelkramer says that Eurostat, the EU statistical directorate, has published a non-binding recommendation to EU states on how to calculate home prices. It advises sampling second-hand real estate transactions and prices, and to include quality data, such as number of rooms and neighborhood. "Eurostat does not advise on the source of the data," he adds.
Dattelkramer says that the German methodology is one of the best in the world. State statistical agencies collect home price and mortgage data reported to mortgage banks. "Were we to measure according to mortgages, we'd have a more accurate picture about prices," he believes. "Banks are more cautious about the loan-to-value ratio, and they commission valuations on the properties they finance. It might be worth it for us to copy the German method, as the Bank of Israel already collects mortgage performance data."
The database and its reliability are critical, says Dattelkramer. "Are the reports to the tax authorities genuine? Up to NIS 1.4 million, above which the property tax is paid, the buyer has an interest to report a higher price, because he is exempt from the property in any case. When the price is higher, he can reduce the betterment tax he will pay in a future sale. When there is no betterment tax, which while rare, the seller has an interest is presenting a lower price for the transaction," he says.
Even assuming accurate reporting, not every home is comparable to another. As former Government Assessor Eyal Yitzhaki puts it, "There is huge heterogeneity in the market."
Israel is not the only country that reports varied home prices data. The US has no single home prices index. Popular national indices frequently show different changes in home prices, given the geographical diversity of the data sources.
The Case-Shiller Home Price Index is the most popular index. But organizations, such as the OECD collect data from the US Federal Housing Finance Agency, whose index is based on mortgages granted or refinanced. The National Association of Realtors also publishes surveys of median home prices, and there are also a multitude of reports and surveys by research companies, banks, real estate chains, and others. The resulting picture of prices is very diversified.
In the UK, the Land Registry is the only source of home prices data. Many mortgage banks and realtors also publish reports. In other countries, central banks, real estate research institutes, realtors, and statistical bureaus publish reports on home prices.
OECD data is based on the statistical bureaus of Israel, France, Australia, Ireland, Norway, and Sweden for their national home prices data; it uses the FHFA for the US, Canada's Department of Finance, and it uses central bank data for the EU, Switzerland, and Korea. In all cases, the OECD uses official government sources, but it is aware that there is no agreed-upon uniform government methodology for home prices.
Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2012
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