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Mind the data gap: ongoing development of the BIS commercial property price statistics. Robert Szemere Monetary and Economic Department, BIS International Conference on Real Estate Statistics Luxembourg, 20-22 February 2019
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Mind the data gap: ongoing development of the BIS commercial property price statistics Robert Szemere Monetary and Economic Department, BIS International Conference on Real Estate StatisticsLuxembourg, 20-22 February 2019 The views expressed are those of the author and do not necessarily reflect those of the BIS
Outline • CPPI as input for policy makers & economic/financial stability analysis • Collecting both CPPIs and RPPIs? • G20 Data Gaps Initiative • CPPIs at the BIS: 4.1 BIS activities with CPPIs4.2 Inventory4.3 Publication • Looking ahead5.1 Targeted indicators5.2 Sources5.3 Cooperation between compilers, national central bank and the BIS
1. Widespread interest for policy makers… • Central banks • Demand and inflation • Monetary policy transmission mechanisms (eg banking intermediation) • Micro supervisors • Banks • Other Financial Institutions (regulated or not: shadow banks) • Macro prudential authorities – systemic risk • Across the financial system • Over time (pro cyclicality)
1. CPPI information and financial stability assessments • Financing cycle: self-reinforcing forces between • Asset prices • Financial conditions eg risk premium / appetite • Credit demand & supply • Perceived loan quality • Impact on financial system’s soundness: commercial property as a guarantee and an asset (when invested directly) • Turn of the cycle • Underlying vulnerabilities as financial conditions tighten • Level of indebtedness matters (non-linearity)
1. Example: increase in CPPI and build up of financial fragilities higher asset/collateral values increase of commercial property prices Build up of financial fragilities Pro-cyclicality during expansion commercial property developers’ balance sheets look stronger • increased corporate borrowing & banklending
1. Example: decline in CPPI and stress in the financial system lower value of assets/collaterals fall of commercial property prices Pro-cyclicality during recession • stricter borrowing conditions thus less new credit balance sheets of corporates deteriorates Higher risks of commercial property developers’ bankruptcy and banks’ losses
2. Collecting both residential and commercial property prices? • Significant efforts required for compiling CPPIs in addition to RPPIs… • … noting still important challenges faced in collecting RPPIs • Worth only if the information content is • Specific (ie different from RPPIs) • Reliable (ie not too uncertain) • Useful (for policy)
2. Specific? Information content may not differ too much • Both prices are basically reflecting the same 2 cost components • Land (location) • Structure (construction costs) • Common forces driving residential and commercial prices • State of the economy • Financing conditions • Building costs • Structural factors (building permission, land availability, etc)
2. Despite limitations, CPPIs can provide specific, useful information… • Different economic purposes • Commercial property: underlying activity is to generate income streams (eg rented properties, properties used in the production process such as retail premises, factories, offices) • Business investment nature • Residential property: household primary need for shelter • Less rapid obsolescence • Role of owner occupation rate
2. … with distinct, important features • Greater correlation with business cycles • Business investment highly cyclical (compared to household demand) • Shorter financing conditions (maturity, leveraged finance) • More amplitude (volatility) • Rates of depreciation in bad times / rapid obsolescence of non-occupied assets • Bankruptcy procedures (firms versus households) • Fluctuations of banks’ exposures (provisions / losses)
2. As always, let the data speak! The US example CPPI more volatile than RPPI
3. G20 Data Gaps Initiative: Phase 2 But G20 DGI isonlythestartingpoint Aim: tocoverasmany countries aspossible, similarlyto Residential Property Price Indicators, wherethe BIS publishesdatafor 60 countries & publishingconsistentdataacross countries.
4.1 BIS activities with CPPIs • To monitor national developments by supporting the compilation and publication of CPPIs by national authorities. • Tocollectdata and metadatafrom all sources but alwaysthroughthe national centralbank • To publish data based on a common metadata template • To promote research by using CPPIs: For example BIS Annual Report, Quarterly Bulletins and Working Papers • Upcomingpublication: (March 2019) • Irving Fisher Committee Report: Mind the data gap: commercial property prices for policy • Largelybased on theWorkshop on Commercial Property Price Indices organised by the Central Bank of Turkey.
4.2 Data availability varies across countries 5 various dimensions • Geographical area: whole country, capital, major cities • Property: Industrial, retail, office, logistics • Compiler: statistical office, central bank, ministry, private source • Source of data: transactions, appraisals, financial market • Frequency: annual, half-yearly, quarterly, monthly Consequently CPPIs are not easily comparable across jurisdictions
4.2 Country coverage: 16 jurisdictions, with only 8 G20s* http://www.bis.org/statistics/pp_commercial.htm G20s highlighted
5.1 Looking ahead: targeted indicators • 1. Aggregate CPPI for the whole country: Why: to capture the entire market, useful for macro-economic analysis • 2. Aggregate CPPI for capital city/financial centre or major cities: Why: to “catch” credit booms, useful for financial stability analysis • 3 & 4 CPPI excluding rented flats* for the whole country and for capital city/financial centre or major cities: • Why: excluding the overlap between residential and commercial segments • *CPPI excluding rented flats will be compiled on a best effort basis as: • Flats rented out by households may not be registered • Rented flats, shops and offices may co-exist in the same building
5.2 Sources • Transactions • Appraisals of lenders (eg banks) • Appraisals of property price information vendors • Financial market indicators (eg REITs) • Examplesof CPPIs based on multiple sources • ECB: appraisals, transactions • Japan, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT): transactions, REITs • Advantage: best possible coverage from complementary information
5.3 How to support BIS efforts to collect and publish CPPIs? • As a researcher or as a private source: • By cooperating with national authorities to compile and publish CPPIs • By informing the national central bank on ongoing projects • As a central bank: • To inform BIS on any developments: new publications, improved methodology, breakdown • To transmit data to the BIS
Thank you!!BIS CPPI statistics:https://www.bis.org/statistics/pp_commercial.htm property.prices@bis.orgrobert.szemere@bis.org