The 2010 Global Real Estate Transparency Index (GRETI) reveals a notable slowdown in the progress of real estate transparency over the past two years, except in the Asia Pacific region. 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.The Asia Pacific region has shown the most broadly-based improvements in transparency over the past two years. Australia and New Zealand are the region’s most transparent markets, closely followed by Singapore and Hong Kong. However, it is in India and China where the region’s greatest advances have been recorded, a trend that has now filtered across each of their secondary and tertiary cities. 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.
- 9 out of 15 fastest improvers are in Europe and 6 are in Asia Pacific
- Turkey is the best improver
- Australia is the most transparent real estate market
- A third of countries are static or declining
- 89% of countries received a score of “semi-transparent” or below in relation to the transparency of their real estate debt market data
Over the past two years, the average improvement in real estate transparency across the 81 markets covered by GRETI has halved, when compared to both the 2006-2008 and 2004-2006 periods.
Of the key components of real estate transparency, the transaction process appears to have been compromised most by the more challenging real estate market conditions of the past two years. More surprising is the evidence of a slowdown of progress in the transparency of real estate regulatory and legal environments. Nonetheless, the quality and depth of information on market fundamentals continues to improve, helping to boost this dimension of transparency in most markets across the globe.
In contrast to previous Indices, a number of markets have seen declining or static levels of transparency with one-third (27 markets out of 81) recording either deterioration or no improvement between 2008 and 2010. Deterioration has been registered in markets such as Pakistan, Kuwait, Venezuela, Dubai and Bahrain. Although the levels of decline have been modest, the reversal of their past gains is notable.
However, there are a number of bright spots, and 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. A number of more advanced markets, such as Germany, Ireland and Denmark, have also moved up the transparency league.
As in previous years, Thailand continued to score in the ‘semi-transparent’, however, the country has gradually improved its level of real estate transparency with its real estate market ranking 39th out of 81 markets covered in the 2010 index, compared to the 45th ranking in 2008.
The change in Thailand’s ranking is a result of the relative improvement in the country’s overall transparency score. The scores in the Global Real Estate Transparency Index range between one and five, with one being the highest level of transparency and five being opaque. Thailand’s real estate transparency score has improved to 3.02 in 2010 from 3.16 and 3.40 in 2008 and 2006, respectively.
The improved score is primarily a reflection of more transparency in the capital markets, specifically as they relate to real estate. Currently there are 60 firms listed under the Property Development sector on the Stock Exchange of Thailand. There are also 26 property funds which trade on the Stock Exchange of Thailand, holding assets of various real estate types. These listed vehicles are subject to higher governance and regulation, as well as regular and standardized reporting, thus providing more transparency to Thailand’s real estate markets.
This is in contrast with the past when Thailand suffered badly from a lack of information about real estate transactions in the market. Major sale transactions in particular tended to be kept confidential by the sellers and/or the purchasers. As a result, actual transacted values against which to benchmark were scarce.
Real estate transparency levels vary widely across the region. It has two of the world’s most transparent markets, Australia and New Zealand, which rank first and fourth respectively in GRETI 2010. Singapore and Hong Kong, two other mature economies, also rank relatively highly, on a par with most European countries. However, at the other end of the spectrum, Asia Pacific also contains some of the world’s least transparent markets, such as China’s tertiary cities (ranked 65th) and Vietnam (ranked 76th).
The most notable improvers in terms of global rankings are China and India, which have seen the largest jumps up the transparency ladder amongst Asia Pacific countries. Comparing across time, most countries have registered improvements in overall transparency scores, though with the exception of China and India, these changes have generally been relatively modest. Three markets in the region have moved 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.
The last two years certainly 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. However, these rights apply to both the equity and the debt sides in the capital structure of real estate, and sorting them out in a complex, securitised capital structure will take time. Occupiers benefit when landlord defaults are resolved quickly and efficiently. Investors benefit when bankruptcy laws are administered fairly and efficiently. This process is unfolding now. In two years time, when our next Index is released, we will be able to report about the role of transparency in the aftermath of a financial crisis.
|31||Russia Tier 1 Cities||2.64||3|
|35||Russia Tier 2 Cities||2.86||3|
|43||Russia Tier 3 Cities||3.12||3|
|56||UAE – Abu Dhabi||3.45||3|
*Denotes new market added in 2010.
Sources: Jones Lang LaSalle, LaSalle Investment Management