In real estate, EMs are more like DMs

Ever been put off buying property in emerging markets because of a lack of market transparency? Well, it may be time to think again.

EM countries such as Turkey, until recently plagued by uncertainty, have made huge strides in real estate transparency, according to the latest biannual survey by Jones Lang Lasalle, an international real estate agent.

Not surprisingly, JLL’s global ranking is dominated by countries such as the US, UK, Australia and the Netherlands. But sharp increases in transparency among EMs led to a rebalancing at the top of the ranking: With Poland, Brazil, Hungary, and the Czech Republic, as well as Malaysia, Hong Kong, and South Africa, there are now seven “transparent” EM real estate markets in a list otherwise dominated by western countries.

Source: Jones Lang Lasalle (Click to enlarge)

JLL’s index is released every two years and rates countries on 83 criteria. That results in an overall score of 1 to 5, 1 being perfectly transparent and 5 not transparent at all, or “opaque”.

Turkey made the biggest leap in 2012 (see chart below), gaining more than half a point to a solid 2.61, just shy of the “transparent” label. That’s a huge advance over the past eight years, when Turkey was one of just six “opaque” real estate markets.

Jeremy Kelly, JLL’s director of research, says both “push” and “pull” factors contributed to Turkey’s metamorphosis.

“On the one hand, more international real estate developers like Corio and Union Investment entered the market, pushing for more transparency,” Kelly says. “On the other hand, there was a broader movement by the Turkish government to eliminate bureaucracy and improve the access of information.”

Source: Jones Lang Lasalle

Turkey is not the only peripheral European market to make strides. Poland, Hungary and the Czech Republic, three “transparent” CEE markets, improved substantially as well.

A key event contributing to this evolution, Kelly notes, was the creation of a “Property Returns Index” by the Investment Property Databank, a real estate analytics company.

“For the the first time, Poland is seen as part of the core European market, while countries like Portugal, Italy and Spain are struggling to keep that same reputation,” Kelly says. “It is a fundamental change.”

The last EM to join the list of newly “transparent” countries is Brazil – although the label only applies to Rio and São Paulo, the country’s so-called “tier I cities”.

An inflow of investments helped, says Kelly. Real estate investments in Brazil surged from less than $2bn in 2000 to about $10bn in 2011, with Rio and São Paulo counting for 80 to 90 per cent. And as in other places, more investment brought about more transparency.

China’s tier I cities also score much better than its other cities. In India, the scores are less spread out.

According to Kelly, this has to do with the scope and depth of the international presence in Asia’s two largest countries.

“In India, many international business providers have a broad footprint across the country, often with an established presence in tier II and tier III cities. In China, international presence in tier III cities like Wuxi and Zhengzhou is still in a pioneering phase, which has its repercussions on the transparency of the real estate markets,” he says.

Taken together, however, the improvement of real estate markets in EMs is a real, consistent, and worldwide phenomenon, thanks to a “virtuous circle of events”, Kelly says.

“Governments realize that if they increase transparency, they will attract more real estate companies, which in turn increases transparency. But what came first? It’s like the chicken and the egg, no one really knows. ”

Source:blogs.ft.com