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Concerns over the Cyprus property price index

Concerns have been raised by the Chairman of the Association for the Promotion of Property Developments about the future of the Cyprus Property Price Index and the involvement of the banks in its preparation.

last-price-indexRecently MAP S. Platis, the organisation that produced the Cyprus Home Price Index, announced that “In anticipation of an official Index from the Statistical Service of the Republic of Cyprus, the BuySell Home Price Index shall stopped being produced, as of the First quarter of 2009”.

But in contrast to MAP S. Platis announcement that an official index would come from the Statistical Service, it appears that the Commercial and Cooperative banks have set up a committee to prepare the index.

Writing in yesterday’s Financial Mirror, George Mouskides, the Chairman of the Association for the Promotion of Property Developments and Manager of Fox Smart Estate Agency, raised his concerns over this latest development:

“During the past few weeks, information has come to the fore according to which the Commercial and Cooperative banks have created a special committee that will prepare a Property Price Index for Cyprus.

We consider this development as very important and with this particular article will try to set out certain conditions and suggestions in order to contribute to matters related to this issue moving in the right direction.

From the start we must clarify that a Property Price Index is a positive and useful tool. Provided it is accurate, it is a useful statistical tool for all those involved in the property sector.

It is worse to have an unsound PPI than not to have one at all. This is why the banks should approach this particular issue without agendas and ulterior motives if they really want to have positive results.

Moreover, banks should not proceed alone with this. It is essential that the Land Registry be involved, not simply as a partner, but as a protagonist.

It is unheard of that the banks prepare the PPI alone because with their recent history, their involvement in the ‘property bubble’ and the global financial crisis, they do not inspire the necessary confidence that they will function fairly and objectively.

The ‘property bubble’ and the global financial crisis began in America, reached Europe and unsurprisingly our island too, mainly because of the banks. The reason was the excessive and uncontrolled lending that resulted in property prices throughout the world booming, and then with the abrupt restriction on loans everything got muddled. Consequently, it is primarily the banks that created the crisis and no one can dispute this.

Therefore, with such information before you, you can only look at new ventures carried out by the banks with a critical eye.

Justifiably, certain questions emerge: will the banks deliberately or involuntarily manipulate the index to their advantage?

In periods when the banks want to grant loans, they will raise the Index and in the event of the opposite they will lower it.

Perhaps every piece of data should be checked and only the government can do that through the Land Registry.

We wish to draw your attention to the preparation and use of a PPI. What is the information they will use in order to prepare the PPI? The banks preparing a PPI must disclose their methodology and data to the public. Such a PPI should reflect the trends of the market and its implications should be understood by all potential users. There should be complete transparency with the data they use and their weight in the PPI. Also, several sub-indices must be compiled, e.g. by type of property and by geographical district the averaging of which should create the general PPI. Sub-indices are usually more helpful for drawing meaningful conclusions.

Therefore, we say yes to the establishment of a PPI but under the right conditions and certainly with the Land Registry at the helm. And why shouldn’t the government proceed with establishing a PPI, an action that no-one will dispute and which won’t be in danger of being manipulated?”

Editor’s comment

Unlike the UK, where members of the public can find prices that were paid for properties in different areas and towns using websites such as Up My Street, such information is not available in Cyprus. (The information used by Up My Street and other UK websites is provided by the UK Land Registry).

In Cyprus, the BuySell Cyprus Home Price Index helped fill that void until the first quarter of this year, although many questioned the validity of the information provided. As the Index was based on a combination of prices at which properties were being offered for sale as well as the actual prices they achieved – and, as agents acting on behalf of those selling property, many felt that BuySell were motivated to report a higher Index than the true reality of the situation.

Last year when questioned by Stockwatch on how it determined property prices, the Central Bank of Cyprus was extremely reticent about revealing the details – saying only that its index was based on “estimates of the value of properties used as a security for the granting of loans by the banks.” (Read the article Cyprus property price confusion ).

Now Mr Mouskides is asking questions about the involvement of the banks in producing a ‘new’ Index. And he is absolutely correct when he says that “every piece of data should be checked and only the government can do that through the Land Registry”.

In my opinion, the banks should have no involvement in producing the new Cyprus Property Price Index. The Land Registry has this information at its fingertips; all contracts for the sale of property pass through their hands. But it seems that the authorities may be either unable or unwilling to release data collected by the Land Registry to the general public.

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