Germany needs to raise its transparency game, say Axel von Goldbeck and Barbara Knoflach from the German Property Federation
Germany's real estate markets are often summarily dismissed as not transparent enough. To support their argument, critics frequently cite the transparency index of Jones Lang LaSalle, which currently ranks Germany fourteenth, and therefore outside the leading group of nations.
Some of the criticism is well deserved. One of the points of criticism made by Jones Lang LaSalle is directed at the German indices which map the market. Many of the indices are simply drawing on pools of data lacking sufficient depth and limited time horizons.
Another issue is that Germany lacks a lead index comparable to those found in many other countries, such as the UK, where this role is played by the IPD index.
Instead of meaningful lead indices, Germany's real estate markets are characterised by a plethora of indices with manifold, sometimes contradictory statements that blend into a hazy overall picture for the uninitiated. Moreover, essential data fields are missing, specifically in the business real estate sector.
In addition to being outnumbere, there are also questions regarding the frequency publication of indices and their degrees of differentiation (that is, the inclusion of sub-markets, such as residential, business, retail, etc.) in comparison with those in Anglo-Saxon countries. The straightforward answer is that the fundamental market data is simply more qualified. This in turn is largely - although not exclusively - attributable to the fact that in the UK and US data must be made available on the grounds of freedom of information acts.
Most of the required data is actually available in Germany, particularly among the appraiser committees, but so far the processing and evaluation of the data has been neglected. What is more, official statistics continue to lack the necessary level of differentiation. A case in point: there are no official figures on the volume of commercial real estate in Germany. Public access to transaction records is often not provided, not least because there is no legal requirement to do so. This translates into high costs for market players wishing to procure this sort of data.
The inherent heterogeneity of real estate poses a comparability problem when compiling transaction-based price indices. It was regarded as a big step forward when several providers managed to develop indices that disregard quality-driven price differences (eg, due to location or condition).
Examples of transaction-based indices in Germany are the planned vdp index, the Hypoport house price index HPX, and the BulwienGesa real estate index.
Collateral value appraisals made out by the mortgage credit banks and sales prices serve as data bases for the planned vdp index. The vdp index relies on about 300,000 valuations dating back to the period between 2003 and 2007. The index is scheduled to have its first publication before the end of this year.
The HPX house price index compiled by Hypoport also uses a hedonic model. It was started in June 2008, and provides data that goes back to 2005. The data pool consists exclusively of owner-occupied properties subject to initial financing, and distinguishes between used houses, new houses, and condominiums.
Going back to 1975, the BulwienGesa real estate index has had the longest unbroken pool of data, comparatively speaking. The index currently reflects changes in rent rates and prices in 125 cities, with the data being mined or processed by BulwienGesa itself. The index is based on current prices and their weightings.
For the sake of completeness, the DEIX price index for condominiums compiled by Gewos should also be mentioned. It maps the annual regional development of mean prices for single-family homes and condominiums on the basis of about 210,000 single-family home sales and about 230,000 condominium sales.
In addition to transaction-based indices, there are a number of valuation-driven performance indices.
The DIX measures the total return from net cash flow returns and capital growth. The index exclusively covers portfolio properties that are re-valued at least once a year. Project developments and portfolio sales are not taken into account.
The ‘Victor' (Valuation Performance Indicator) by Jones Lang LaSalle rates the performance of prime office locations in the cities of Berlin, Düsseldorf, Frankfurt am Main, Hamburg, and Munich.
The German Property Index (GPI) by BulwienGesa has mapped real estate performance by sub-segments and regions since 1991. It provides performance indices for 125 cities in the segments of office, retail, residential and logistics, and covers the period between 1991 and 2006, with forecasts extending all the way through 2011.
With the house price index of the Federal Statistics Office under development, a first official index will draw on price performance in the so-called self-built, the prefab and the turn-key segments. The final expansion will include the coverage of existing residential buildings in addition to prices for newly-built houses. It will be the only index that will fully map the market - as it will be based on the data of the local appraiser committees in the turn-key construction sector.
Next, Eurostat will dictate at a European level how to calculate the national indices, and how to merge them into one European index that will also be available as an early indicator for economic development in Europe. This will prospectively reduce the catch-up need in the residential real estate sector, although not in the commercial real estate sector.
It is impossible to have reliable market indices without a sufficient data pool. This underlies the transparency deficits on the German real estate market. The relevant authorities ought to make their data available for evaluation either by the public sector or by private institutions. This way, the government would provide vital help to enhance the real estate industry as the powerhouse of economic growth and to boost its attractiveness to investors.