The benefits of market transparency are plain to see

I recently wrote a column about football, transparency and the Russian real estate market.

Russia were great hosts of the 2018 World Cup finals – to the surprise of many people.  I’ve been to the capital, Moscow, a few times, and the reality is very different to the perception.  As a mega metropolis (did you know, it’s the largest in Europe?), it is very internationalised, and even cosmopolitan in parts.  All great characteristics for a top class property market.  So why isn’t Moscow – and the rest of the country – performing better?  Amongst other things, it’s simply not transparent enough.

In July, JLL released its 20th anniversary edition of the industry benchmark Global Real Estate Transparency Index (GRETI).  Analysing 186 indicators it ranks 100 countries (and 158 cities) into five tiers of transparency, from “Highly Transparent” to “Opaque”.  And why does this matter?

Market transparency allows investors, corporate occupiers, governments and public bodies to operate and make decisions with confidence.  GRETI makes it clear:

“Without high levels of transparency, real estate markets cannot work efficiently”.

Russia is no.38 on the Index, in the third tier: Semi-Transparent.  France, Germany and the UK are “Highly Transparent”.  The 11 countries in this top tier (also including the US, Australia and Canada) account for 75% of global direct investment into commercial real estate.  London is also ranked the most transparent city.  And when it comes to transaction volumes is only bettered by New York.  Maybe we should all focus more on transparency.

Three things I learnt from GRETI 2018

The most transparent places have lots of easily accessible, high quality market data, such as amount of stock, vacancies, rates, yields, etc.  But transparency isn’t just about the availability of data.  Expectations are changing.  And for me, GRETI highlighted three areas that broaden the perspective on what a transparent real estate market is:

  • Sustainability: Sustainability is now a fundamental part of the industry.  The various strands of sustainability – be it Green Building Certifications, Energy Efficiency Standards or Carbon Reporting – matter to people, whether corporate occupiers or investors.  Some requirements are compulsory.  But others are voluntary.  And they’re certainly not applied consistently.  If you are doing the minimum, you are not doing enough.  Expectations are constantly rising and I anticipate this will be a huge differentiator in the future.  Go the extra mile… your future returns will depend on it
  • Proptech: Proptech start-ups have raised over US$6bn in funding in the last two years.  Nearly all of them generate data at scale and make data easier to access; sometimes transparency is about data.  The Netherlands was amongst the best global improvers in GRETI 2018 due to its proptech adoption and open data initiatives – other property industries have a lot to learn from this
  • Professionalism: The leaks from the Paradise Papers and Panama Papers rightly shone a light on the secretive ownership of (mostly high value) property and the potential for corruption, tax evasion and money laundering.  But we can help governments find a solution.  Let’s lobby law makers to raise regulatory standards.  Let’s work with land registries to qualify the information they hold.  Let’s play an active role in ensuring our profession has the highest ethical standards

Transparency is only one of many factors in making real estate decisions.  But the three examples above show how transparency isn’t just an add-on, but goes to the heart of what we should be doing.  If we can get transparency right, the benefits are plain to see.  We all have a responsibility to improve transparency, no matter if it’s already good – complacency will lead to bad habits.

Visit http://www.jll.com/GRETI for more information and to download the full report.

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