Why real estate must take transparency to the next level
Governments worldwide have been gradually forging greater transparency in real estate markets, addressing growing demands from investors and the public to deliver significant change.
The pace, according to experts, has been too slow.
In the last two years, 85 of the 100 countries surveyed in JLL and LaSalle’s Global Transparency Index recorded an improvement from 2016. New regulations and a broad implementation of technology have been critical drivers of the progress.
But the changes overall have been incremental. The average transparency score in 2018 was up 2.4 percent from 2016, a rate of improvement that has remained almost unchanged since 2010, JLL data shows.
“Advances in real estate transparency are failing to keep pace with an environment where investors and businesses, as well as society at large, are demanding much higher standards,” says Jeremy Kelly, global research director, JLL. “There’s a frustration with the lack of progress.”
There have been noteworthy improvements, such as the UK’s proposed beneficial ownership register and the European Union’s Fifth Anti-Money Laundering Directive. India’s government has introduced a raft of initiatives aimed at reducing corruption. The U.S., one of the most transparent property markets globally, has adopted proptech faster than anywhere else.
Real estate markets in many countries – including India, China and Turkey – are on cusp of transparency. “But there is a big leap before they reach the next level,” says Matthew McAuley, Senior Analyst, Global Research at JLL.
The push for clarity
Continuing revelations from the Paradise and Panama Papers have kept the issues of corruption, tax evasion and transparency in property ownership in the public eye. Heightened awareness stemming from the data leaks has focused on the high-end residential sector.
However, transparency is increasingly important for commercial real estate, where investors are allocating ever more capital. The availability and quality of information – from prices to ownership – is crucial when trying to make investment decisions, especially in new markets. Standardized data is also a requirement for large companies looking to lease space.
To cater to this demand, government measures are aimed at improving their competitive position.
Transparency in real estate “increases accountability and quality of governance, and improving it is an important step for countries and cities that want to cultivate a productive business environment,” says Fernando Ferreira, Associate Professor of Real Estate and Business Economics & Public Policy, Wharton School, University of Pennsylvania.
While progress may be slow, real estate transparency is moving in the right direction.
India has introduced wide-reaching regulations in the last two years, ranging from rules that require brokers to be registered, to mechanisms to resolve disputes with developers.
Foreign investment into India’s real estate sector has risen in parallel with these changes, to US$6.3 billion in 2017 from US$2.2 billion in 2014, according to JLL data. The anticipated growth in the REIT industry bodes well for further gains.
Dubai has also passed positive regulation. Its government initiatives include a building classification project, improved regulatory procedures, new and enhanced online apps for managing contracts and broker information, and unified lease forms.
Such measures are designed to attract higher levels of foreign investment, “one of the key objectives of the Dubai Land Department,” says H.E. Sultan Butti bin Mejren, Director General at the Dubai Land Department.
“While significant progress has been made in recent years, we recognize that further initiatives are required to enhance the level of market transparency,” he says.
The next big leap
Technology is poised to provide the next big leap in transparency.
Proptech tools that transcend national borders such as blockchain, brokerage apps and open-source data could help semi-transparent markets such as China, Dubai, Mexico and Brazil to leapfrog the normal process of transparency.
Benefits are not a given. Take data security, for instance. “As building sensors start to accumulate massive amounts of data, how do we make sure its use is transparent?” says Kelly
So far, proptech has proved broadly helpful. The Netherlands has greatly improved its real estate transparency in recent years in large part due to proptech. The European country already had a transparent real estate market, but innovation around blockchain and open data initiatives has enhanced its position further. .
Whatever changes are on the horizon, investors and the public will continue to scrutinize every move.
“The industry is in the spotlight,” Kelly says. Transparency’s importance “is only going to increase going forwards.”