Property's New Dawn

What's happened to the property market? It's been a generation since anyone came up with a product that could ignite investor interest in the way listed property trusts (LPTs), syndicates and strata titling brought thousands of new investors into the market a decade ago.

Perhaps the greatest obstacle to the development of residential real estate investment has been the poor quality of information. Even the Reserve Bank of Australia has conceded that public data on our residential markets is inadequate. Now all that may be about to change: three powerful players in the property market are planning to radically improve the quality of property data in Australia. A joint venture between property information provider, RP Data, property financier Rismark International and Macquarie Bank is set to allow private investors to finally access many of the information advantages real estate agents, developers and financiers have enjoyed for years.

What's more, when this new data becomes available later this year it will pave the way for investment products such as property index funds and property futures that Australian investors have been talking about for a generation

Just this week there are signs that the property market is gearing up for a new wave of residential investing. Yesterday, Westpac announced it had purchased $100 million of housing stock from the Australian Defence Forces and the houses will underpin a Real Estate Investment Trust, a property trust based on residential properties. Westpac's ultimate $500 million REIT project will be the biggest development in the market for several years.

However, as RP Data managing director Graham Mirabito suggests, the possibilities for residential investing are limitless once a new era of property data goes public. Mirabito's team is close to completing a genuine national property database with individual curbside pictures of more than nine million Australian homes.

According to Mirabito, in a short time private investors will be able to get unprecedented levels of information on target properties; at the same time, fund managers will be able to offer property indices on every conceivable set of property statistics. A Sydney Harbourside Home index, a Melbourne Docklands index, a Sunshine Coast Holiday Apartment Index '” it's coming soon.

One of the reasons Eureka Report believes Mirabito and his team will deliver on the promises outlined in today’s interview is the range of powerful property executives behind the plan. Macquarie Bank half-owns both Rismark and RP Data. In turn, RP Data is co-controlled by Ray Catelan, a veteran of the property information business (and an early shareholder in Realestate.com.au) while Rismark has links with investment banker Chris Joye and John Trowbridge, the founder of leading actuarial group Trowbridge Consulting.

James Kirby: Could you tell me, from your point of view as an expert in the area, what’s wrong with property data in Australia?

Graham Mirabito: I guess the main issue with regard to property information in Australia is getting meaningful data in a timely fashion. At the moment it costs a lot of money and a lot of resources to do that and unless somebody is investing a lot of money they cannot get all they want.

Are sharemarket investors better served than property investors?

Absolutely. On the stockmarket, investors can see the return on the funds they have invested and how their assets are being put to work. But the typical private investor in Australia might have one or two properties and they just can’t rely on that sort of information from any single source at the moment.

Our Eureka Report columnist David Morrell has said that median figures mean very little and that the passed-in figures people see in their Sunday newspapers mean nothing at all. Do you think that’s true?

Well, there's a lot of support for what David is saying there. I'd say median figures or passed-in figures represent just one data point. There’s a lot of good work being done in multiple areas, but on their own they’re not enough.

Are you aware of a property market anywhere in the world where the data is sufficient for private property investors? Have you ever come across a market where they’ve got it right?

The Chicago Mercantile Exchange has this sort of information and it relies upon what they call hedonic analysis, which is the methodology that we plan to use here with our new indices. Also in London there are indices produced using the hedonic method as well. We’ll be using hedonic plus median plus recent sales or repeat sales.

Could you tell us what this “hedonic” approach involves?

Sure. What hedonic does is it looks at the key attributes that make up the property, as in land size, the size of the property, of the house or the unit on top of the land. The attributes being number of bedrooms, bathrooms, free-standing garage '¦ has it got a pool, has it got views? The concept behind hedonic research is to try and ascribe a value to each of the attributes and consequently you’re looking for the building blocks of value to create an overall valuation or indices '” at the property level, at the street level, at the suburb level, even at the state level.

Does this detail about bedrooms and bathrooms really matter? I thought the key determinant of urban residential properties was the land value?

It varies from city to city and you must remember that houses themselves can have value, certainly some older properties may be worth less than new properties, but then again if the property is more than 100 years old then it’s a different situation. There are a lot of properties now, particularly in Victoria and South Australia and Sydney, that are more than 100 years old and they appreciate in value, so the dwelling does make a difference.

So you're accumulating what you describe as the best property database ever seen in this market. What information have you been collecting?

Well, in conjunction with Rismark we're doing a lot more than the traditional process of getting the Government valuation records, Land Title records and putting them together. We're doing new work; we've got digital maps of Australia. We’ve then got aerial shots over the populated areas. We’ve matched those to the cadastre maps as well.

What are cadastre maps?

They’re the maps to show the boundaries of the property. And then you overlay the aerial to actually get a real photo shot on top of the boundary shot and then we’ve gone to add our own data so we’ve re-keyed every ad in every newspaper every week. We’ve then gone and taken photos in Queensland, New South Wales and Western Australia, of about 85% of the population.

Then we’re currently doing New Zealand and next month we start in Victoria and South Australia. Our aim is to take a photo of every house in Australia from the front.

At the moment we have nine million photos in the database, about 3.5 million of which we took the photos ourselves so we get photos from websites that give us their photos from when people are selling their property but not every property’s been for sale so that’s another reason why we went to take the photos. Also, matched to the aerial shot, you can see whether they’ve got a view of the water, for example, or some other value attributing feature.

So by the end of this year you'll basically have the Australian residential market “on file”. What's the plan then?

Before the end of this year we plan to launch a set of indices concentrating right down to suburb or even street level for every major city in Australia. We will provide those indices to financial institutions and government alike, that will buy them on a subscription basis in order for them to track those trends for whatever purposes they’re using them. On top of that, any retail investor will be able to get what they want as well.

So could I as an investor say, 'Look, I’m interested in the Sunshine Coast, in Caloundra. Can I get the Caloundra apartment index?’ '” something like that?

That’s pretty well much how it will work.

How much this will cost the retail investor?

We haven’t finalised pricing but on RP Data.com. Right now, if you’ve got a particular property in mind, you can call up a report for around $40, which will give you all of the information we have on that property as well as what recent sales have occurred in a one or two kilometre radius around that property; and it will give you some sort of guide as to what value you can expect the property that you’re looking at to either sell or buy. But it’s not perfect, which is the reason why we are producing the indices. That information is there now and we see that there’ll be a small charge put on top of that current product.

Will it be the first time retail investors can get their hands on this sort of information?

Yes it will be, from what I’ve seen in the market. As I say the thing that everybody’s got to understand here is that this is an alignment of interest. Rismark has hundreds of millions of dollars to invest and therefore they need this level of data. So when we started doing the work we saw a broader opportunity, but it had to be much better than what was out there.

I imagine you, Macquarie Bank and Rismark will do something with this information beyond simply selling it. What would be possible in the future? Would it be possible to have index funds that are benchmarked off these new indices?

Yes, I see that. I see a futures market; perhaps even evolving where people might trade futures contracts.

Do you mean property futures based on the indices you'll create?

Yes, if you take the natural evolution we’ve seen in the financial markets, it’s another asset or instrument that can be traded.

And where would they be traded?

I think we could get them traded on the Sydney Futures Exchange..

When do you think it will be technically possible to do that?

Probably within 12 months if people put enough resources into it and there was enough demand there. I mean, like anything, you’ve '¦ commercially got to scope these things out but we’ve got to walk before we run.

Do you think there is a demand?

Yes, I think that in the Australian market in particular, where we’ve got a very strong market and the number of assets we can invest in and participate in are limited I believe, this would create another dimension. So, yes, I think the appetite is there.

Which indices might be the most popular, do you think?

It will probably be more something around a suburb, a suburb level than indices at the suburbs level.

So something like Sydney Harbour sites suburbs indices? Something like that?

Yes, that would be a good example.

I don’t know if you agree with this, Graham, but it strikes me there hasn’t been a significant innovation in property for a decade. I mean, all the innovations that boosted the local market at the beginning of the last property boom '” strata titles, listed property trusts, tax-effective syndicates '” they all go back to the 1980s as far as I can see. It seems to me it’s a long time since there was anything significant that really charged the property market.

I think that’s fair to say that, but it's been difficult given that Australia has so many states and territories; it’s really like dealing with different countries. In each state and territory the data is different; it’s collected differently; it’s delivered differently. So in order to create anything like a national service, it’s a big project. It takes a lot of investment; we’re putting in $5 million a year into our database to manage the thing nationally '” tempered with privacy, transparency is evolving at a fast rate. Standing back from it, I think the information’s about to be unlocked and we’ve got a platform with which we’re able to unlock it and deliver it back, so I think there's a new alignment happening.