Metadata for aggregate quarterly non-farm residential dwelling value data

Background

Quotable Value Ltd (QV) is a State Owned Enterprise and is New Zealand's largest property valuation and information company. QV maintains a comprehensive property database on all property classes in New Zealand. The property database contained historic and current valuation data on around 1.45 million non-farm residential dwellings at December 2004.

Territorial Authorities (local governments or TLAs) obtain property (land and building) revaluations for the purpose of levying rates. The revaluation process normally occurs every three years, with Wellington and Taupo revaluing each year. A Capital Value (CV) is assessed for all property. This is often referred to as a rating valuation or, historically, a `government valuation'.

New dwellings built, or properties requiring revaluing due to building improvements between regular valuation periods, have their CVs calculated at what the market value would have been at the last TLA valuation date, not as the current market value of the property.

This procedure revalues dwellings for which no market price has been established in the period. Because the 74 TLAs have their property revaluations struck at different dates it is not possible to obtain aggregate economy-wide private dwelling values by a simple aggregation process. However, a robust approximation can be achieved each quarter, for which the methodology is outlined below.

Data quality at source is considered to be high. Property valuations are administered by registered valuers and are audited by the Office of the Valuer General. Procedures are available for householders to seek amendments to their property's valuation assessment and lodge appeals if necessary. In addition to the involvement of valuation professionals, the tensions between the objectives of TLAs in establishing dwelling valuations and those of dwelling owners tend to enhance data quality.

QV also acquires sales records for all property sales from TLAs. It is a legal requirement that TLAs are notified of the details of every property transaction within their boundaries. This data is then used by QV to analyse sales trends in a number of ways. One method is the QV House Price Index (HPI). This uses the relationship between actual sales price and capital value of properties at the time of sale to create a historic index that minimises distortions. The new methodology adopted at the December 2004 reference date for the QV HPI has made possible the calculation of a quarterly aggregate current market value for the Reserve Bank of New Zealand for non-farm residential dwellings by applying this ratio to the most recent valuation.

Sales data

Sales data is extracted from QV's live residential property database, which contains sales data for all properties and TLAs from the 1980s onwards. However, for the RBNZ total dwelling value exercise, data extraction to current standards was possible only at March from 1995.

Net sales price is used. This is the price paid excluding chattels (estimated at 5% of gross sales value if not itemised on the Sales Notice).

Only single freehold open market sales are used. This excludes part or multi property sales, where there will be a natural difference between sales price and CV which would adversely affect the price / CV ratio - for example where a home owner sells off part of a section. The sales price for the sold section is likely to be lower than the CV of the original property.

For the purpose of establishing price change, the quarterly sales data is edited to exclude sales with an extreme ratio of net sale price to CV (less than 0.7 and greater than 2.4). It also excludes sales in the top and bottom 2% of the remaining ratios.

Report Time Delay

The data are reported as at sales date and there is a delay between sale date, sale registration with the local authority and the data being available in QV's database. Therefore a three month time delay for HPI calculation, and consequently derivation of dwelling values, is introduced. More than 90% of sales from the previous quarter are available by this time. The quarterly HPI derived from these sales is not revised.

Property Categories Included

Property categories are based on criteria set by the Office of the Valuer General. Every property is assigned to a category by the TLA, allowing statistics to be generated for specific types of property. For the purposes of this report, categories were chosen to capture the main residential properties. The categories used and number of dwellings in each category as at December 2004 are shown below, for number of dwellings rather than assessments (which are fewer because of multiple dwelling properties):

As at December 2004 (No. in thousands)

RD  Residential dwellings (houses, units, baches)
1,015
RF Residential flats
213
RC Properties converted to flats
17
RH  Home and income properties  22
RR Rental flats (purpose built) 75
LI Lifestyle improved - lifestyle properties with a dwelling 98
Total

1,440

Brief methodology for aggregate dwelling value calculation from December 2004

Sales data from each quarterly period for each TLA are used to adjust the full property database valuation. The total net sale price (after editing) of all property sales of the listed residential categories is divided by the total CV of the same properties sold in a quarter, producing a ratio for current value against CV at the time of regular assessment. The ratio arrived at is applied to the entire stock of CV values for each TLA. Results for each TLA are aggregated.

Quotable Value Ltd
April 2005.