Last week, we defined an efficient market as one in which all the relevant information is available to all its participants at the same time. This, in turn, allows prices to respond immediately to new information.
We pointed out that the stock market has become so efficient that if you can’t process new information in a fraction of second, you’ll end up on the losing side of the trade.
In contrast, the real estate market has long been an inefficient market.
Last week, we outlined six parts of an efficient real estate market.
In fact, Singapore is moving to an efficient market – at least as efficient as a property market can be.
We have both the private and public sectors to thank.
First the good news on Singapore’s progress, and then let’s look at what’s left to do.
In terms of pricing a residential property, there is no more transparent market than Singapore. The government has made raw transaction information available to the market.
Working with leading estate agencies, SRX Property has used algorithms to process public and private raw data into a pricing mechanism that helps market participants establish a trading price for homes. This pricing mechanism, known as X-ValueTM, is a computer-determined valuation of each home in Singapore. Market participants then use this single value as a starting point for negotiating the final transacted price.
Just like it’s easy to get the price of a stock by checking a digital ticker on a stock exchange website or by calling up your broker, it’s fast and free to get the X-Value for a home.
SRX Property distributes X-Value calculators on SRX.com.sg, various SPH digital news publications, and selected public apps. In seconds, the public can calculate the value and pricing trends for any HDB or private apartment in Singapore.
Also, homeowners and buyers of landed property can contact their real estate agents for the X-Value of detached, semi-detached and cluster homes.
In the weeks ahead, X-Value will appear on even more digital platforms so that some day it will be as ubiquitous as a stock ticker.
In addition to being the only market with a pricing mechanism like X-Value, Singapore is fast approaching the stock market in terms of visibility, meaning the ability to understand the fundamentals of the housing stock and the market.
Digital platforms like Google and Bloomberg have made the fundamentals of individual public companies highly visible. In seconds, they provide information on the performance of these stocks and information like price-to-earnings ratios and market cap.
The same is true for the real estate market in Singapore. A professional real estate agent or analyst can use mobile apps (i.e., SRX AnalyerTM) to quantify each apartment building in terms of fundamentals, including variables like capital appreciation, price trends, rental yield, and unit turnover, much like a stock analyst quantifies a company.
Furthermore, SRX Analyzer's algorithms are sophisticated enough to identify mismatches in pricing between buildings and units and suggest arbitrage opportunities.
As a result, in Singapore, each apartment building has the same visibility as a company listed on a stock exchange.
While Singapore’ property market has made great strides on the “buy-side” by providing more transparent, processed, and usable pricing information to purchase or rent property, it lags the stock market on the “sell-side.”
In order to list on a stock exchange and sell shares in a company, your company must meet stringent requirements with respect to performance, transparency, and compliance. This ensures that market participants understand what they are buying. As a result, when you buy shares on the stock exchange, you know exactly what shares are available from each company. There are no phantom companies listed on the stock exchange.
This is not the case in the Singapore property market. While the home listing market has improved for reasons I will highlight soon, it has a ways to go before it approaches a stock exchange in terms of listing standards.
Anyone who has shopped for a home in Singapore knows that it can be an unpleasant experience of trying to sift out real listings from duplicates and dummies, meaning listings that are phantoms because they don’t represent actual homes for sale or rent.
Intuitively, we know that Singapore’s property listing market is not where it should be.
On any given day, there are more than 200,000 listings. Since listings have gone online and property portals have matured, this number has not fluctuated much, even during different degrees of Cooling Measures.
SRX Property estimates that the correct number of unique listings for both HDB and private sales and rentals is 50,000 for any given day, not 200,000.
Why is having an accurate accounting of unique listings important to an efficient real estate market?
The same reason it’s important to have an accurate accounting of the number of shares available on a stock market. Listings reflect how much housing stock is available for sale or rent in the market at any point in time.
The quantity of stock impacts supply and demand. This, in turn, impacts price.
Today, in Singapore we have a distorted view of the housing stock available in the market. Any distortion in the market is bad and causes homes to be mispriced.
Technology has contributed to the distortion of the listing market. Property portals have made the cost of posting listings nearly negligible. As a result, there has been a proliferation of duplicate listings, even during the Cooling Measures.
The good news is that the market is trying to correct this distortion. The Council for Estate Agencies (CEA) has encouraged agents to pursue exclusive listings and have provided them with documentation to protect and govern their relationship with clients. Now, for example, agents post, on average, 2,500 documented, exclusive listings on SRX.com.sg per month.
In addition, leading property portals like SRX.com.sg and PropertyGuru have been incentivizing agents to post higher quality listings by rewarding them with better visibility on the digital platforms. For example, SRX Property recently launched a rating system for property advertisements on its sites that moves higher quality listings to the top of search results.
While these initiatives are a step in the right direction, the economics favour a noisy property listing market in which unprofessional agents place large quantities of poor listings on property portals for essentially pennies. Until the public starts to demand only genuine, quality listings, the market will continue to suffer the inefficiencies of a distorted listing market.
The real estate market reflects thousands of daily, complex interactions involving listings, home viewings, negotiations and transactions. For Singapore to move to a truly efficient market, it still has work to do on ensuring widespread access to pricing information and a listing market that reflects the actual housing stock.
If Singapore moves to an efficient market, everyone wins. Consumers will know exactly what’s available in the market and have a good understanding of a home’s value. Professional estate agents will be more productive and be in a position to advise their clients with more timely and accurate information. Finally, industry analysts, policy-makers, and regulators will have better visibility into the functioning of the market.
Technology, information and professional agents are in place for an efficient real estate market. All that’s left is for the public to demand excellence in real estate from all market participants.