75% of global real estate investment is in highly transparent markets

Real estate market transparency is increasing across the globe and 75% of investment now takes place in highly transparent markets, new research shows.

Globally, transparency scores have increase by an average of 2.4% from 2014 to 2016, down slightly from the 2.9% recorded in 2010 to 2012 and the 3.4% from 2012 to 2014, according to the latest global real estate transparency index from international property advisors JLL.

The firm says that these ‘encouraging results’ highlight a real estate industry that is making steady progress through initiatives to deepen the availability and quality of market data and performance benchmarking.

This is being done through new legislation to reduce roadblocks to progress, by setting higher ethical standards and by taking steps to make transaction processes more fair and transparent.

The Anglosphere countries continue to dominate the upper echelons of the transparency hierarchy accounting for six of the world’s 10 highly transparent markets with the United Kingdom, Australia, Canada and the United States in the top positions.

The report says that these traditional standard bearers are taking transparency to a new level, making improvements that go beyond other highly transparent markets, particularly in areas of performance measurement, market fundamentals data and valuation practices.

‘In these markets, property data is increasingly available at the city sub-market level and by property type and further improvements in performance measurement and market data are on the horizon, especially in tracking niche property sectors,’ the report says.

‘They are setting a high bar for transparency and are showing the way for other markets to follow. The world is looking to these highly transparent markets to take the lead in introducing greater transparency on beneficial ownership disclosure and on tightening up anti-money laundering legislation and procedures in the wake of the revelations from the Panama Papers,’ it explains.

When it comes to improvements Central and Eastern Europe feature strongly. Slovenia and Serbia are the top improvers globally since 2014, followed by Bulgaria. These three Balkan countries have moved up into the semi-transparent category due to improving market fundamentals data and better valuation practices, but they remain well below most of the rest of Europe.

Echoing the 2014 survey, Sub-Saharan Africa is also home to some of the strongest improvers, most notably Botswana and Zambia.

The report points out that the greatest progress over the past two years has been made in market fundamentals, the access, depth and quality of aggregated and disaggregated data on real estate market conditions. Despite improvements, this is an area of real estate transparency that still has the strongest potential for further development.

It explains how technology is aiding transparency as an industry that was slower than others in technology innovation is seeing a quantum leap, with an emergent ‘prop-tech’ sector offering platforms of real-time, very granular data to corporate tenants and landlords.

It says that the next two years are likely to bring about an even faster pace of change in the technology and data platforms and infrastructures that the commercial property industry utilises and underlying transparency should improve as a result.

Technology is also allowing some emerging markets to leapfrog the normal transparency evolution. Examples include the digitisation of land registries in Kenya and Ecuador, while Ghana is reportedly trialling a system to record title deeds with block chain technology.

It also points out that regulatory reforms are essential for further progress in real estate transparency and a number of governments appear to be taking steps forward by introducing newlegislation, with recent examples including Dubai, India, Qatar, Rwanda and Taiwan. However, in many markets there continues to be a disconnection between the existence of regulations and actual enforcement, it adds.

The largest differences between regulation and enforcement are found among the semi-transparent group of countries, where progress still needs to be made in enforcement of financial regulation, land use planning, building codes and contracts, and where penalties for non-compliance need to be more stringently applied.

Meanwhile, opaque markets demonstrate little difference between regulation and enforcement, suggesting that a lack of regulation itself is holding these least transparent countries back, rather than a lack of enforcement.

The report explains that there continues to be evidence that sustainability considerations are becoming more widely established, although the pace of progress in creating tools and regulations is slow. Most of the improvements have been driven by the introduction of minimum energy standards for new and existing buildings.

‘There are encouraging signs that two cornerstones of environmental performance transparency, minimum energy efficiency standards and green building certification schemes, are available in the majority of key markets.