Global Real Estate Markets Becoming More Transparent

by Carla Johnson, Investors Offshore.com

24 July 2006

Commercial real estate markets around the world have become increasingly transparent over the past two years, according to Jones Lang LaSalle’s 2006 Real Estate Transparency Index.

Designed to help real estate market participants identify global opportunities, the Real Estate Transparency Index measures the relative transparency of the world’s largest real estate markets. The Survey addresses the following five attributes of real estate transparency: availability of investment performance indices; availability of market fundamentals data; listed vehicle financial disclosure and governance; regulatory and legal factors; and professional and ethical standards.

The Index is based on a structured survey conducted with senior Jones Lang LaSalle or LaSalle Investment Management personnel working in each country. Based on their responses, countries are ranked and placed in one of five transparency tiers, ranging from Tier 1: Highly Transparent to Tier 5: Opaque.

Australia, the United States and New Zealand take the top spots in the latest index, followed closely by Canada and the United Kingdom. With exemplary underlying legal and regulatory factors, these countries serve as role models in their respective regions, according to the researchers.

In this year’s survey, 23 countries rank as Highly Transparent or Transparent, up from 21 countries earning the same designation two years ago. In 2006, 10 countries ranked as highly transparent, compared with six in 2004.

Highly Transparent countries for the first time in 2006 are Hong Kong, Sweden, France and Singapore, each having jumped to Tier 1 from Tier 2 since the 2004 survey. France and Sweden were buoyed by long-time series investment performance indices, readily available market fundamentals data, strong accounting standards and disclosure regimes, consistently applied regulations, strong legal frameworks and high professional standards. Hong Kong and Singapore were helped by their ability to meet global improvements in accounting standards and governance and more publicly reported property information.

Mexico and the United Arab Emirates also exhibited significant improvement, although they remained in the same tier as they were two years ago.

The Index ranks Vietnam, Venezuela and Egypt as the least transparent real estate markets surveyed.

In Asia Pacific, there has been marked improvement, with more than half of the countries studied in the region moving up the real estate transparency tiers. Japan and India exhibited the greatest transparency improvement, each moving up a transparency tier. Japan was bolstered by the availability of market information, improvements in taxation transparency and the enforceability of contracts. India’s improvement from low- to semi-transparent was helped by the availability of market information, improved general accounting and reporting processes, and substantial improvement in contract enforcement.

In Europe, while a number of mature markets jumped tiers (France and Sweden from transparent to highly transparent, and Portugal and Italy from semi-transparent to transparent), few have seen dramatic changes in either the availability of market information or in legal and planning services. With the exception of Greece, pre-accession EU members, as well as Switzerland and Norway, are now considered transparent.

South Africa is the only transparent non-European real estate market in the Europe and Middle East region. According to the research, its market has robust investment performance indices, strong regulatory and legal infrastructures, efficient transaction processes and high professional standards.

The Middle Eastern region saw transparency improvements across all markets, although Israel remains the only semi-transparent market. The strongest improvers are the United Arab Emirates and Saudi Arabia, where governments have become increasingly business- and investment-friendly and have exhibited improvements in accounting, legal and regulatory frameworks.

North and South American countries improved their transparency scores over the past two years. High transparency in the US is an important contributor to the record inflows of cross-border capital to the country over the last two years. Mexico showed the most improvement in the region, as its transparency score moved up from a low Tier 3 country in 2004 to a high Tier 3 score in 2006. These factors include the availability of property information in the transaction process and the professionalism of real estate agents.

In South America, Brazil and Argentina made the most improvement in 2006, each jumping from Tier 4 to Tier 3. Brazil benefited from improvement in the availability of market fundamental data, while Argentina was helped by improved transparency in the governance of publicly listed real estate vehicles.

“Since the first publication of the Jones Lang LaSalle Real Estate Transparency index in 1999, we have charted gradual improvement in a number of transparency measures, but progress has been especially rapid in the two years since we last produced the index,” commented Jacques Gordon, LaSalle Investment Management’s Global Investment Strategist.

He continued:

“Overall, two-thirds of the countries ranked in our 2004 survey exhibited some or significant improvement. Some 14 countries moved up a full tier in our five-tier transparency ranking system and none slipped back. Additionally, many more countries earned higher transparency scores while remaining in the same tier.

“Improvements can be observed in several different dimensions of transparency. Among the greatest sources of improvement are the introduction of new investment performance benchmarks, more financial disclosure by listed real estate companies and heightened external governance of these listed companies.

"That said, there has been slow progress in the legal and regulatory categories — two areas of great interest to investors and occupiers.”

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