Be wary of official' industry valuations. There aren't any

Want to join SA's growing band of property investors and tenants? Be sure to take a healthy dose of salt with any "official" statistics you're given.

Because property does not have a central trading and benchmarking exchange like equities and bonds do, demand for information on vacancies, rents and prices has resulted in a stream of statistics from property associations, consultants and economists. This is an important step forward in a usually secretive industry, but not always what it seems.

For instance, if you want to buy a shopping centre, the SA Property Investors' Digest will tell you that Gauteng regional shopping centre yields have been dropping (and prices rising) for five years. Yields for 1999, the latest year for which figures are available, are 10,2%, down from 12,7% in 1995.

The digest is compiled by Sapix, a central property data index formed by major property owners.

But no Gauteng regional shopping centres have actually been sold and Sapix figures are based on centre owners' valuations. Another problem, says Pat Flanagan, MD of property specialist Colliers RMS, is that the figures represent only institutional retail property owners that own and contribute to Sapix, not the whole market. "These [statistics] are not a true indication of the market."

Corpcapital Bank property head Marc Wainer, too, describes available statistics as poor. He says Corpcapital relies on its own connections in the industry to establish current rents and yields.

Told recently that he was overpaying for his offices, a government official exclaimed: "But we can't be. We used the SA Property Owners' Association (Sapoa) quarterly office rent figures as our benchmark." What he missed was that the Sapoa survey gives gross asking rents, which are inevitably negotiated down by the tenant.

Consultant Erwin Rode's Rode Report is another source but, like Sapoa's, his statistics come from a panel of brokers and owners. A comparison of rents from each source shows there are big differences. Rode says A-grade office rentals in central Johannesburg are R32,50/m². Sapoa's figure is R28.

Flanagan says macro-economic data from government is of little use because it is so dated.

The result of all this confusion? "Investors juggle poor statistics to commit themselves to, typically, 20-year investments in a market with famously short and volatile cycles - and typically end up in a debt trap," says Flanagan.

The good news, he says, is that research and advice are improving as SA becomes part of the global property market.

RMB Properties MD Bryan Jackson says Sapoa figures are a reasonable guideline but they should be more empirical. "Larger organisations do their own research but smaller developers use the public figures and are flying by the seat of their pants. What we need is a property register with more fundamental information."

Sapix CEO and Sapoa strategic services manager Stan Garrun says Sapix was formed to provide reliable information to the industry: "We had to start somewhere. We are continually improving our data as we aim to become a true information exchange." He says Sapix is commissioning research into the quality of valuations. "Everybody here is committed to transparency. The industry is discovering that there is no advantage to overvaluation because properties soon start underperforming against our figures."

Residential buyers and sellers are perhaps better served by Absa Bank's quarterly reports on residential prices. But even these are flawed. The bank's statistics are based on the 33% of all SA mortgage bonds it grants each year, so exclude 70% of the market. Absa also omits cash sales - 30%-50% of the market .