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Real estate and professional services in the CPI

The real estate services class and the professional services class had a combined expenditure weight of 0.90 percent in the consumers price index (CPI) at the June 2011 quarter. The sources and methods used to compile the real estate services and professional services classes are explained in this article.

Position in the CPI structure

The miscellaneous goods and services group of the New Zealand Household Expenditure Classification represented 6.85 percent of the CPI at the June 2011 quarter. The real estate services and professional services classes make up about one-eighth of this, as shown in table 1. Other subgroups in the miscellaneous goods and services group include personal care (hairdressing, electrical appliances for personal care), personal effects (jewellery, watches), insurance, and credit services. Personal care has the highest share (about one-third) of the group's expenditure weight, while insurance services represents more than one-quarter.

Table 1

Expenditure weight for real estate services and professional services
June 2011 quarter

Group, subgroup, or class Level Weight (percent)
Miscellaneous goods and services group  Group  6.85
 
Other miscellaneous services  Subgroup  1.53
 
Professional services (includes conveyancing and associated legal services, and land transfer registration services) Class 0.18
 
Real estate services (for sale of dwellings) Class 0.73

Expenditure weight estimation

The expenditure weights for professional services and real estate services are derived from sources other than the 2009/10 Household Expenditure Survey (HES). The HES does not adequately capture spending on these services given their infrequent nature.

Information used to estimate the expenditure weight of professional services includes: Real Estate Institute of New Zealand (REINZ) Market Facts, Statistics NZ's building consents data, and prices collected for associated legal fees in the CPI (for calculating weighted average conveyancing and associated legal rates).

Conveyancing is all the legal work needed to buy or sell a home. The expenditure weights for conveyancing and associated legal services are calculated by estimating the volume of sales of sections and dwellings. Market Facts provides the number of sales of existing sections and dwellings, while building consents data is used for estimating sections and dwellings that are new to the household sector. Weighted average conveyancing and legal rates calculated from prices collected for the CPI are then used to give expenditure on conveyancing and associated legal services.

Information from Land Information New Zealand is used to estimate expenditure on land registration transfer fees.

Expenditure weights for real estate services are derived from REINZ Market Facts, Statistics NZ's building consents data, Property IQ Residential Sales Summary, and average commission rates from the CPI survey of real estate agents.

The numbers of sections and dwellings sold are combined with average house price values to give an overall value of sales. This overall sales figure is then combined with average commission rates from the CPI survey to estimate expenditure on real estate services.

Adjustments are made to exclude expenditure on sales that are out of scope of the CPI, such as sales of dwellings by landlords.

Item and sample selection

The range of services monitored in the CPI was developed with input from conveyancing and associated legal service providers and real estate agents.

The services collected for conveyancing and associated legal services were selected to represent different scenarios. There are four transaction types:

  • sale and purchase of dwelling (with mortgage)
  • sale of dwelling (with mortgage)
  • purchase of dwelling (with mortgage)
  • purchase of dwelling (without mortgage).

Real estate services are based on the sale of dwellings at the lower-end, middle, and upper-end of the property market in each region.

Price collection

Postal questionnaires are sent to about 90 real estate agents and about 120 conveyancing and associated legal service providers.

Prices for conveyancing and associated legal services are collected with supporting documentation that outlines standard procedures for purchasing and selling property and mortgage financing.

Real estate agents are asked for the commission they would charge for the purchase of three different residential properties (lower-end, mid-range, and upper-end properties). The sale prices for the dwellings are based on sale price information from Property IQ. Conditions of the purchase are specified on the Statistics NZ questionnaire sent to real estate agents, such as the asking price being close to the agent's estimate of the market value, expected time to sell, and the amount of advertising expenditure.

Prices for land transfer registration fees are collected by Statistics NZ staff from the Internet. Prices are collected for electronic and manual lodgement.

Estimation

For real estate services and professional services, prices are used to directly calculate the New Zealand item-level indexes.

Quality assurance

The CPI aims to measure the price change of the same services at each sampled outlet or business over time. In practice, sampled products may become unavailable, change, or become unrepresentative. When this occurs, there may be a change in quality and an adjustment is made so only the estimated 'pure' price change is shown in the CPI. For example, a price increase (decrease) that is deemed to be purely the result of better (poorer) quality service should be adjusted and the price change not shown. On the other hand, an increase in price without any corresponding change in quality will be treated as a pure price increase. As an example, if the nominal value of a house had increased (decreased) without any corresponding change in quality, then the fee charged for buying that same house would also increase (decrease).

When considering the service provided for real estate services and conveyancing and legal services, the price respondents provide should be for the transaction of the 'same' house from quarter to quarter. However, house prices change over time. To reflect this in the CPI, the representative sale prices specified on the questionnaires are updated using data provided by Property IQ. The Property IQ house price index is a quality adjusted house price measure and this helps to ensure that the price change for the same house is reflected in the conveyancing and real estate fees respondents provide.

Back to Price Index News: October 2011

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