July-August 2008 VOL. 2

Foreign Exchange

Emerging markets have significantly improved their levels of real estate transparency, according to the latest Global Real Estate Transparency Index from Jones Lang LaSalle and LaSalle Investment Management. In 2008, eight countries moved up a full transparency tier since the last index in 2006. Dubai, Romania, Ukraine and Russia showed the biggest improvements in transparency over the last two years.

The Global Real Estate Transparency Index covers 82 countries, territories and administrative regions on six continents. It is compiled from a transparency survey that assesses five key attributes of real estate transparency - performance measurement, market fundamentals, listed vehicles, legal and regulatory environment, and the transaction process. The scores range between one and five, with one being the highest level of transparency and five being opaque. Countries are grouped into the following broad bands: Highly Transparent (Tier 1), Transparent (Tier 2), Semi-Transparent (Tier 3), Low Transparency (Tier 4) and Opaque (Tier 5).

Table 1 Largest Transparency Score Changes 2006-2008

The 2008 Index shows that nearly half of the countries surveyed in 2006 demonstrated a significant improvement in their transparency score two years later. Transparency levels globally are improving as governments seek to streamline regulatory and legal hurdles to aid cross-border movement of capital and corporate facilities. Only Venezuela posted a lower transparency score this year compared with 2006, principally due to changes in government regulations and new taxation policies targeting foreign investors.

"The steady improvement in transparency, particularly over the last four years, is closely linked to the forces of globalization that drive investors to move across borders in search of higher risk-adjusted returns," says Lee Elliot, a director with Jones Lang LaSalle's Research team. "This movement of both capital and corporations around the world has created an even greater need for information about markets. It has also created an incentive for governments to streamline bureaucratic practices which prevent the free flow of capital into and out of global markets."

In keeping with historical results, the Australian and U.S. real estate markets remain among the most transparent in the world. With the addition of new variables relating to the quality and frequency of valuations, service charge transparency and financing transparency, Canada now ranks as the world's most transparent commercial real estate market.

Elliot notes that increases in the free flow of information regarding capital, tenants, management and markets are closely related to rising productivity of real estate in countries with improving transparency. This productivity can be measured by investment returns and in terms of corporations' ability to provide efficient workspaces, logistics facilities, retail environments, and business and leisure centers for travelers and domestic markets alike.

"While many emerging markets have made improvements to their real estate transparency, our index shows that not all governments and market participants have embraced the necessary changes," Elliot adds.

The Index shows that 28 countries posted transparency scores that were within 10 basis points of their scores in 2006. Jones Lang LaSalle researchers say that consistency in transparency scores over the years is expected in real estate markets such as Australia, the UK, the U.S., Singapore and Hong Kong where a high degree of transparency already exists. However, countries such as Argentina, Greece, Indonesia, and Peru have consistently scored in the low transparency range over the last few years despite an increase in cross-border trade, finance and commerce over the same time period.

A number of countries in the "frontier markets" have been included in the Index for the first time, with Belarus, Sudan, Algeria, Cambodia and Syria scored as "opaque". Other new entrants into the Index, Bahrain, Bulgaria, Estonia, Latvia, Croatia, Abu Dhabi, and Lithuania, scored in the "semi-transparent" range, while Oman, Qatar, Morocco, Kuwait, Pakistan and Kazakhstan all scored in the "low transparency" range.

Table 2 2008 Top Ten Most Transparent Countries