The analysis of indices
There are a range of specific problems which many companies come across when investing in property. In particular, a problem which teachers at the Property Investment Institute in Chicago (CCIM) call ‘informational inaccessibility’ of the market. Fairly often, specialists give contradictory information about the market. So, on what grounds can we base our investment decisions? Various indicators can be helpful.
Indicators - the western experience
Information is a very important component of property investments. Many investors face this problem and want to solve it. As usual, when we start doing something here in Russia we look to the West as our example. Things are not as bad there as the teachers from Chicago would have. There is a single cadastral system and, in many countries, special state institutes are engaged in monitoring the property market. Furthermore, property market indicators are regularly estimated and published. Consequently, in the USA, the rate of discounting, the rate of capitalization and other factors can be regarded as indicators. In our country, the Russian society of appraisers (ROO) has also tried to publish indicators periodically. However, the last issue dates back to 2001.
An impartial assessment
The Russian property market is growing gradually. It has become an integral part of the capital market along with other sectors of the financial markets. Property not only serves consumer and business purposes, but is also a class of asset in which you can invest spare cash and get an income. There are different kinds of investors: individual and institutional. Before making an investment, it’s very important for a potential investor to pay attention to the state of the market and, in particular, to the position of the main investors. They can do this with the help of different sources of information, the most convenient of which are the so-called indicators.
Indicators are all kinds of indices, ratings, rankings, benchmarks, classifications etc. They give a clear view of the state of the market. Such indicators are of great importance for beginner investors, as they can help them to ‘enter the market’, and to see which branches are experiencing growth. A glance at the rating, ranking, classification and the index will give you a full picture of the market. As for professionals, the indicators are considered to be their main source of information.
The indicators of the property market in Russia
The following indicators are mainly used in the property market in Russia:
- summary index (RTC)
- RUssian indeX (RUX)
- real index of Roskapital
- summary stock index MMVB
- index RBK
- summary index AK&M
These indices are meant to give an impartial assessment of the stock-market. Taking into account the importance of stock-markets in economics, stock-indices are broadly used to forecast the state of macroeconomics. As a stock-index covers a wide variety of problems, it should meet different requirements, the methods of estimation and liquidation, the rich stock of historical facts.
However, the real use of the aforementioned indices, which would help us to gain a fuller understanding of the market, is quite limited. That’s why professionals tend to work out their own indices. Among such professionals are Gennadi Moiseevich, Oleg Repchenko and Andrei Gennadievich as well as realty advisers from Moscow research forum, ABN Realty, Vesco Consulting and others. Several publications and websites also take an active part in the creation of indices(CRE, irn.ru, Expert RA, Forbes, REQ and Arendator.ru and many others).
The necessity and significance of this work is obvious. “The greater part of commercial property projects are evaluated from the point of view of their future sale, after a number of operational periods”,-says the vice-president of the Project Finance Management, AK BARS bank,- “that’s why when analyzing the market, especially the investment markets, we should give a great deal of consideration to indices, the correlation of the rental price for the areas with analogical indicators in Central and Eastern Europe, the dynamics of rental price in the market, the rate of capitalization, etc.”
“Undoubtedly, working in the property market you should be well informed about the general trends in the development of the market with the help of ratings, indices and classifications produced by property market analysts as well as those specialists in property agencies,-says Roman Bolshakov, the Head of Marketing and Economics group, OOO ‘Veles Kapital Development’. “However the available, generalized data does not always help in the analysis of specific projects. As a rule, when our specialists are evaluating a certain project or a segment of the market, they use their own facts based on interview, information from other investors and knowledge of other projects. We have our own system of project assessment, our own data-base that covers all sectors of the property market and is regularly updated”.
“In the analysis of the commercial property market (commercial property in particular) we use such indicators as net absorption, leasing activity, the vacancy rate, the space per employee. By using the following indices we get a clear view of the market, regarding the correlation of supply and demand. They help us to make the right decisions concerning the spheres and ways of investing”,-says Ilya Shershnev, the Development manager of the company Swiss Realty Group.
According to Roman Bolshakov, investors need the ratings of the property market of large Russian cities, as well as the rating of the districts of Moscow (the price of a sq. m., the presence of vacant areas, the outlook, the quantity of projects etc.)
The ‘Russian Investment House’ company underlines the intellectual side of the matter.
”We are well aware of the importance of cooperation in producing tools that will make it easy for the investors to make investments in the property market. Our company has recently worked out several indicators for investments in the property market with research into the area of stock-market structure and developer ratings.”