Commentary on real estate index
At last, after a few years delay and only at the National Bank initiative, the first Romanian real estate index appeared. Expectations were at a high level, due to the present situation and the delay but also due to total lack of transparency in this market and in the industry. Initially, the mass-media and the public understood that the index will provide them with very accurate and detailed information regarding the price someone is expected to pay for a specific type of property. But in general, this is not the role an index should have. The real estate market index isn’t a “price calculator”, but a trend indicator.
The National Statistics Institute (INS) has released three indexes (total apartments, total individual buildings and the national average), based on calculations made on data gathered from notary offices. The descendant trend described by these indexes is, in my opinion, correct.
One must understand beforehand that real estate market is essentially a collection of very different goods and it isn’t what we usually call an “efficient” market. For a statistical analysis of this market, it is crucial that the approach is well-adapted to these particularities. It is not a simple task; it requires well-trained professionals and doesn’t necessarily fall in INS’s duty.
For example, the location of the property, one of the most influential factors in the market value of a property, has only two categories: capital/the rest of the country. This “forced” categorization is also applied to other characteristics of the real estate property, making futile any attempt to calculate/estimate an individual property price based on the index. But as a trend indicator (the normal and intended role), the index reaches its goal.
As for the index values published, it has to be understood that the methodology used was Laspeyres’s, which could explain the moderate variations (under 5 percent), versus the Paasche method, which could have shown a more abrupt declining of the market. In my opinion, we could see tens of percent variations until the end of this year.
Dr. ec. Adrian Crivii, FRICS, MAA