The Property Council’s annualised quarterly index was down from June to September, but rose in the September quarter compared with a year earlier, just like it did in the March quarter. One very helpful reason for the better look in September is that the March quarter figure was revised downward.
I’ve written about the index figures changing before and, again, the reason for the better look of the graph wasn’t publicised.
The index is compiled by the Australian office of MSCI and is still known as the Property Council/IPD NZ property index. MSCI Inc of New York took over IPD Group Ltd of London in 2012. MSCI is best known for its global indexes. IPD measures commercial real estate markets and has been running a New Zealand index with the Property Council since 2007.
When MSCI executive director Anthony De Francesco presented the March quarter update in May, his chart showed the return on all property up from 12.1% in the March 2015 quarter to 13.9% in the March 2016 quarter. However, a revision since then shows the March 2016 return at about 12.9% – a 100-point cut.
The return rose to 13.1% in June, then fell to 12.7% in September.
Dr De Francesco said “the market appears to be stabilising, with the September quarter results showing a slight softening to the June quarter.”
Last year, Property Council chief executive Connal Townsend said only 15.3% of assets were revalued during the September quarter: “Due to the low levels of asset revaluations in the sample, it is important that users are fully aware that the risk of stock-specific circumstances disproportionately impacting sector and even all-property returns is high. The figures should therefore be treated as only indicative of market performance and should be considered within that context.”
But the index is given wider circulation than simply to Property Council participants.
After the latest results appeared again to make it hard to compare with a moving target, I emailed Dr De Francesco for an explanation.
My first email: I’ve just asked the Property Council NZ to send me the index information you presented yesterday, because the latest annualised total return is lower than that in March. For both March & September I’m using your figures. Is there a simple explanation?”
My second email: “The quarterly annualised return chart I was looking at was for March, showing a 13.9% return. On your long-term chart to September, that looks to have fallen to about 12.9%, so a decline from March through June to September has turned into a rise to June then a fall to September. But a 1% drop is big in just 6 months, and the June & September figures could also change substantially, so it’s hard to say there’s any trend at all.”
His response: “Yes, the return stats are different due to changing valuation profile. The return index results for June 2016 were based on a relatively very low sample. The Sep results is based on a significantly larger sample. Our methodology recomputes the June index results and prior results using a linear interpolation technique that back-fills missing quarters. It’s this variance in the valuation profile that gives rise to the changing return profile.”
That’s nice to know. But for me it means the index is unreliable because outsiders aren’t informed of the revisions, or their timing or reasons, so the graphs presented in this story are here only to illustrate the changeability of the index. I don’t feel I can rely on either the long-term performance charts or the quarterly figures.
25 May 2016: Industrial leads property returns index
11 November 2015: Low valuation level makes commercial property index “indicative-only”
16 May 2014: Property index figures go for a walk
2 December 2012: MSCI completes IPD takeover
Attribution: Property Council release, De Francesco response.