Asia Pacific Focus
Fifteen economies in the Asia Pacific region are included in GRETI 20103. In addition, we provide disaggregated analysis of the markets in China and India by assessing market transparency at the city level.
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 economic downturn and difficult financial market conditions have been likely contributors to the extent of improvement in transparency for most markets between 2008 and 2010. For example, the steady growth of the real estate investment trust (REIT) sector in Asia in recent years contributed to earlier improvement in transparency, but the market has been stagnant since 2008, with few initial public offerings in major markets. The last two years have also seen a significant decline in real estate investment transactions across the region.
On the other hand, the big improvement for China and India has been mainly due to increased data availability as well as ongoing regulatory changes. In each country, booming real estate markets have greatly contributed to the improvements as both public and private sector players have taken important steps forward to promote greater levels of transparency. International corporate occupiers and investors are increasingly demanding better information on market fundamentals, while government agencies and market regulators have made slow but steady progress on the regulatory and legal front. Indian cities in each city-tier are now considered slightly more transparent than their Chinese counterparts. However, the two emerging economic giants of the region remain very close in terms of overall real estate transparency.
An interesting anomaly is provided by Japan and South Korea. Despite their relatively high levels of economic development, both countries present surprisingly low levels of real estate transparency. Japan ranks 26th globally and significantly below other major advanced economies. South Korea ranks 42nd globally, and sits close to the Chinese and Indian primary cities within the Semi-Transparent level. Both countries share a relative lack of information on market fundamentals and have low transparency in regard to service charges.
Sub-Index Analysis
In terms of the sub-index categories, Asia Pacific has continued to record steady progress in relation to market fundamentals, mainly due to improvements made by China and India, as well as Macau. Market data in the region is most comprehensive for the office sector, however significant progress has been made over the past two years in tracking the region’s retail and residential markets. In contrast, data availability for the industrial and hotel sectors is still relatively sparse.
Asia Pacific has also continued to advance on the regulatory and legal front, not only in China and India, but across South East Asia (SEA). In China, for example, there is now much greater enforcement of property taxes, although mainly in the primary cities. There has been a more consistent and open implementation of regulations following the 2007 Property Law, particularly in regard to the Chinese land market. China has moved to a public auction system for land use rights, which has increased transparency into what was previously a highly uncertain situation. In India, progress has been made in areas such as planning and building codes and availability of public records. However, title records are still incomplete and not easily available, although the situation is improving. A number of SEA markets have seen improvements in regulatory factors, including the consistent application of building and planning codes and the enforceability of contracts.
Transparency of the transaction process is definitely improving, with real estate agents as well as facilities and project managers in markets such as China, India, Japan and the Philippines adopting higher professional standards. However, in some countries, aspects of the transaction process remain wanting, a result of inconsistent professional standards across the region, and local practices dominate in many cases. A sizeable percentage of sales transactions in the Chinese and Indian tertiary cities, Taiwan and most SEA markets lack high-quality, reliable and comprehensive pre-sale information assembled by the vendor, and the bidding and negotiating process is not always considered fair and transparent outside of the mature markets.
Few improvements have been observed in the listed vehicles category in the last two years, partly due to difficult financial market conditions over this period. A notable exception is India, which has seen strong growth of the commercial real estate sector in recent years, with local real estate firms attempting to tap into foreign markets for funds (both debt and equity). This development, along with an increasing number of real estate funds in the country, has lifted levels of corporate governance in India.
Of all the sub-index categories, Asia Pacific has made the least progress in regard to performance measurement since 2008. There remains much room for improvement in the availability of indices relating to the investment performance of real estate assets, and those based on unlisted real estate vehicles.
Finally, with regard to the transparency of real estate debt markets, across much of Asia Pacific there is still a lack of clarity on the size of total outstanding debt, and more detailed data is generally not easily available. Even in Australia there is no central source of information (i.e. it comes from various sources such as REITs, commercial banks, the central bank and credit rating agencies). However, the poor availability of information on CRE debt is less likely to be an issue in the region than for Europe or the Americas, as real estate players in Asia Pacific generally rely on traditional bank lending and not the securitised debt market. Similarly, less stringent oversight of CRE lending by bank regulators has not led to severe problems and the region has emerged relatively unscathed from the global financial crisis.