Jones Lang LaSalle and LaSalle Investment Management have released their 2010 Global Commercial Real Estate Transparency Index, which shows that Australia is the worldÃÂs most transparent real estate market in 2010, pushing Canada into second place. Whilst one third of markets globally registered no change or a deterioration, there are a number of bright spots, and real estate transparency continues to improve, albeit moderately, in the majority of markets. Of the top 15 improvers, nine are in Europe and six are in Asia Pacific. Turkey tops the league table of transparency improvers, and progress has been made in China, India, Poland, Portugal, Romania, Greece and Hungary. Declines in transparency were registered in countries such as Pakistan, Kuwait, Venezuela, Dubai and Bahrain; although the level of decline was modest in these countries, the reversal of past gains is notable. Over the past two years, the average improvement in real estate transparency across the 81 markets covered by the Index has halved, when compared to both the 2006ÃÂ2008 and 2004ÃÂ2006 periods.
Jacques Gordon, Global Head of Strategy for LaSalle Investment Management, the independent fund management arm of Jones Lang LaSalle said: ÃÂThe 2010 Global Real Estate Transparency Index reveals a notable slowdown in the progress of real estate transparency over the past two years. It suggests that the recent turmoil in global financial, economic and real estate markets has impacted on market behaviour, with real estate players focusing on survival rather than market advancement. It is interesting to note that the most highly transparent countries experienced illiquidity and volatility over last two years, despite their positions at the top of the transparency rankings. That said transparency does appear to speed up the restructuring process.
He continued: ÃÂTransparent real estate caused problems for investors during the credit crisis because it had been put into opaque vehicles. The 2010 report found that debt transparency is generally lagging behind overall real estate transparency in many countries. We expect that a new focus on regulatory and private market-led transparency in the real estate debt markets will be one of the main reforms to come out of the credit crisis.ÃÂ
Commenting on transparencyÃÂs impact on city competitiveness, Rosemary Feenan, Head of Global Research at Jones Lang LaSalle, said: ÃÂWhile transparency is highly important to real estate investment and occupational strategies, it also increasingly underpins a city's competitive strength. The challenges of the last few years have served to accentuate the need for business friendliness, and improving transparency is certainly a feature that will add to a city's attractiveness as an investment or corporate location. Our research revealed there is an increasing number of cities where regulations and laws are being enacted to give clarity to the markets; for example in Abu Dhabi plans have been announced to establish a regulator for the real estate market similar to RERA in Dubai, and in Brazil all municipalities must now adopt an approved urban master plan helping to provide solid context for land use futures.
She continued: ÃÂThe upward movement in the index of Chinese secondary cities has been in a good part due to progress made on the consistency of implementation of income tax, stamp duty and land value appreciation tax, and likewise the Indian tertiary cities are benefiting from improvements in the availability of title records and moves such as the consistent application of building codes. These approaches are creating a new layer of competiveness and as new urban strategies are created, especially in emerging markets, we are likely to see further serious attention given to issues of transparency as these cities work hard to compete for future investment.ÃÂ
Real Estate Debt Transparency: In addition to the original measures of performance measurement, market fundamentals, listed vehicles, legal and regulatory environment and transaction process, the 2010 Index measures for the first time two elements of real estate debt transparency: the breadth and depth of data available on commercial real estate (CRE) debt and how well commercial real estate lending risks are monitored by regulators of financial institutions. In a parallel trend to the overall transparency scores, levels of debt transparency vary greatly. In many developed countries, the regulatory oversight process achieves reasonably high scores, but the scores on the availability of information on CRE debt markets do not. In less developed countries, scores on both attributes are in the semi-transparent range, or lower.
Although extensive real estate debt market data exists in the United States, Canada, and Ireland (all scoring a ÃÂ1ÃÂ), this is not true in many other Highly Transparent countries. Just over 89% of countries received a score of Semi-Transparent or below on this question. Even top-ranked, Highly Transparent countries such as France, New Zealand, and Germany struggle to provide market participants with a data time-series on real estate debt outstanding, maturities and originations.
The countries with the highest scores for consistent and thorough CRE debt regulation are Australia, Ireland and Canada. This question followed a more normal distribution than the data availability question ÃÂ 57% of countries scored either a ÃÂ2ÃÂ or a ÃÂ3ÃÂ. However, with only four countries scoring a ÃÂ1ÃÂ, it is clear that many well-developed countries struggle to achieve highly transparent real estate lending regulations ÃÂ for example the United States and the United Kingdom did not score a ÃÂ1ÃÂ on the lending regulations question. By contrast, countries that remained relatively unscathed from the crisis such as Australia and Canada scored very well. However, the monitoring of whole loan lending practices is not the only important aspect of a countryÃÂs CRE debt transparency. Securitised debt raises new disclosure and regulatory challenges.
EMEA: Europe is a mixed picture of transparency. The traditional leading pack ÃÂ Australia, New Zealand, the United Kingdom (third position), the United States and Canada ÃÂ have now been caught up by a number of European markets including Sweden, Ireland and France.
Turkey and some Central and Eastern European (CEE) countries have shown good progress as their markets have become more internationally traded and their regulatory and legal environments become aligned with core EU economies. In fact, the more advanced CEE countries of Poland, the Czech Republic and Hungary have now caught up with the laggards in Western Europe, such as Italy, who have struggled to improve real estate transparency. However in Russia and the Ukraine, transparency improvements have stalled in 2010, a reflection of the severity of the real estate downturn in both markets and a sharp contrast to the strong improvements registered in 2008.
Some of the markets in the Middle East and North Africa (MENA) region, which were highlighted in our 2008 Index for their strong advance in transparency, have experienced a setback in 2010. A number of MENA markets have registered a minor deterioration in transparency, including Pakistan, Kuwait, Dubai and Bahrain. Dubai epitomises the regionÃÂs struggle to achieve further improvement in transparency levels. Dubai has however, also taken the lead in introducing important regulatory reforms that have the potential to improve market transparency over the next few years.
Elsewhere in the MENA region, transparency is improving in some North African markets reflecting the growing international interest in North African real estate. The countries in the Levant region (i.e. Lebanon, Jordan and Syria) are appearing on the international real estate radar and are gradually moving up the transparency curve.
Asia Pacific: The Asia Pacific region has shown the most broadly-based improvements in transparency over the past two years. Australia and New Zealand are the regionÃÂs most transparent markets, closely followed by Singapore and Hong Kong. However, it is in India and China where the regionÃÂs greatest advances have been recorded. This trend has now filtered across each of their secondary and tertiary cities, with three markets in the region moving up into a higher transparency tier: the Chinese secondary cities, Indian tertiary cities and Indonesia, all of which have shifted from the Low-Transparency (Tier 4) to Semi-Transparent (Tier 3) level. This big improvement for China and India has been mainly due to increased data availability as well as ongoing regulatory changes. In each country, booming real estate markets have greatly contributed to the improvements as both public and private sector players have taken important steps forward.
International corporate occupiers and investors are increasingly demanding better information on market fundamentals, while government agencies and market regulators have made slow but steady progress on the regulatory and legal front. Indian cities in each city-tier are now considered slightly more transparent than their Chinese counterparts. However, the two emerging economic giants of the region remain very close in terms of overall real estate transparency.
Asia Pacific also continues to show some of the biggest anomalies, with both Japan and South Korea showing low levels of real estate transparency relative to their economic maturity. Japan ranks 26th globally and significantly below other major advanced economies. South Korea ranks 42nd globally, and sits close to the Chinese and Indian primary cities within the Semi- Transparent level. Both countries share a relative lack of information on market fundamentals and have low transparency in regard to service charges.
Americas: The Americas markets have shown more modest changes in transparency. Improvements have been static in the regionÃÂs two most transparent markets, the United States and Canada, as well as in most of the Latin American markets. Canada and the United States have remained the regionÃÂs only two Highly-Transparent (Tier 1) countries, and rank among the worldÃÂs most transparent markets.
A large gulf continues to exist between Canada and the United States and the other countries in the region, as no country in the Americas falls within the Transparent (Tier 2) level. Following the United States (ranked 6th globally), Chile ranks 34th globally and falls within the Semi-Transparent (Tier 3) level ÃÂ where Brazil (the only major economy to register notable progress) , Mexico, Argentina and Costa Rica can also be found. Panama, Uruguay, Colombia, Peru, Venezuela and the Dominican Republic are characterised by Low-Transparency (Tier 4). Venezuela has registered the greatest decline in transparency since 2008 as regulatory and legal changes, including weakened enforceability of contracts, negatively impacted on its overall transparency profile.
Jacques Gordon concluded: ÃÂThe last two years demonstrate how high levels of transparency do not eliminate risks for investors or occupiers. Free flows of information and consistent enforcement of local property laws did not prevent values from falling or produce better access to credit at a time when liquidity dried up. The real value of transparency, though, should become evident when comparing how quickly markets are able to open up again after a financial crisis. The recapitalisation of real estate in many countries is being helped by the free flow of information and the protection of property rights.ÃÂ
