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ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND
PROPERTY MARKET TRANSPARENCY
PROFESSOR GRAEME NEWELLUniversity of Western Sydney
JUN
E
2009
INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT CONTEXTINVESTMENT CONTEXT
Global listed property: $1.0 trillion Global REITs: $361 billion
- US:51.1% - Australia: 10.2%
- Europe: 21.8% - Asia: 12.4%
INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT ACTIVITYINVESTMENT ACTIVITY
2007: $1.072 trillion - domestic @68% - cross-border @32% 2008: $517 billion - domestic @69% - cross-border @31% 2008 cross-border investment - US: 9% - Australia: 17% - Europe: 47% - UK: 38% - Germany: 58% - France: 48% - Netherlands: 23% - Italy: 36% - Asia: 27% - China: 25% - Japan: 23% - Singapore: 50%
2007 GLOBAL PROPERTY 2007 GLOBAL PROPERTY TRANSACTIONS TRANSACTIONS
Sou
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2008 GLOBAL PROPERTY 2008 GLOBAL PROPERTY TRANSACTIONSTRANSACTIONS
Source: Real Capital AnalyticsSource: Real Capital AnalyticsS
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INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT REQUIREMENTSINVESTMENT REQUIREMENTS
Accurate market and financial information Reliable performance benchmarks Enforceable contracts and property rights Clarity regarding taxation and regulation of property Fair treatment in transaction process Ethical standards amongst professionals hired to
transact business Overall: property market transparency is key issue
PREVIOUS INTERNATIONAL PREVIOUS INTERNATIONAL PROPERTY RESEARCHPROPERTY RESEARCH
Portfolio diversification benefits of international property - Bond - Hoesli - Ling
Regional diversification benefits; eg: Asia
- Bond - Eichholtz Property market convergence/integration; eg: Europe
- McAllister - Lizieri - Bardham Property market maturity/transparency
- Chin - Brounen - Newell
Emerging property markets; eg: Eastern Europe, Africa, South America, Asia
- Adair - Lim
PREVIOUS INTERNATIONAL PREVIOUS INTERNATIONAL PROPERTY RESEARCHPROPERTY RESEARCH
Determinants of international property performance- eg: returns, rents
- De Wit - Hamelink
Next step: link property market maturity/transparency with determinants
Newell (2008): 54 countries @ 2006
- regions - mature/emerging
- linkages
PURPOSE OF PAPERPURPOSE OF PAPER
Assess linkages between property market transparency/maturity and various economic, social, institutional and technology competitiveness indicators over 71 countries
Identify key linkages/factors: 2008
Compare linkages across regions and for mature/emerging markets
Expanded # countries @ 2008
METHODOLOGYMETHODOLOGY
Property market transparency: JLL Economic, social, institutional, technology,
competitiveness indicators: WEF, TI Linkages 71 countries overall Data: largely opinion-based surveys
- JLL - WEF - TI
JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX
82 countries• China, India, Russia @ Tier 1, 2, 3
Real estate transparency index: 1 to 5 Criteria (5); 15 elements assessed
• availability of investment performance indices• availability of market fundamentals data• listed vehicle financial disclosure and governance• regulatory and legal factors• professional and ethical standards
Transparency index @ 1999, 2001, 2004, 2006, 2008
JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX
5 categories re: real estate transparency• highly transparent: 1.00 to 1.49 (10 countries)• transparent: 1.50 to 2.49 (16 countries)• semi-transparent: 2.50 to 3.49 (25 countries)• low transparency: 3.50 to 4.24 (26 countries)
• opaque: 4.25 to 5.00 (5 countries) Development of real estate transparency index
JLL REAL ESTATE JLL REAL ESTATE TRANSPARENCY INDEXTRANSPARENCY INDEX
2008 improvements• Countries: 56 → 82• Tiers 1, 2, 3 @ China, India, Russia• Middle East coverage: 3 → 11• Eastern Europe, North Africa coverage• Regional sub-indices: 5 per region• Composite index Vs classic index
Table 1: JLL global real estate transparency index: 2008
Highly transparent: Australia, US, New Zealand, Canada, UK, Hong Kong, Netherlands, Sweden, France,Singapore
Transparent: Finland, Germany, South Africa, Denmark, Austria, Ireland, Belgium, Spain, Switzerland, Norway, Italy, Malaysia, Japan, Portugal, Czech Republic, Poland
Semi-transparent:Hungary, Israel, Taiwan, South Korea, Slovakia, Chile, Greece, Russia (Tier 1, 2, 3), Philippines, Brazil, Thailand, India (Tier 1, 2), China (Tier 1), Dubai, Bahrain, Bulgaria, Ukraine, Romania
Low transparency:China (Tier 1, 2, 3), India (Tier 3), UAE, Costa Rica, Indonesia, Turkey, Peru, Colombia,Argentina, Uruguay, Saudi Arabia, Panama, Vietnam, Abu Dhabi, Qatar, Kazakhstan, Oman
Opaque:Belarus, Sudan, Syria, Algeria, Cambodia
Source: JLL (2008)
REAL ESTATE TRANSPARENCY REAL ESTATE TRANSPARENCY CLASSIC SCORE ANALYSISCLASSIC SCORE ANALYSIS
WEF GLOBAL WEF GLOBAL COMPETITIVENESS REPORTCOMPETITIVENESS REPORT
134 countries re: global competitiveness: 2008-09 1 to 7 score; 120 criteria assessed Indicators: categories/sub-categories
-global competitiveness -institutions
- infrastructure -macroeconomy
-health and primary educ. - higher education and training
- market efficiency - technology
- business sophistication - innovation
- environment -basic indicators
WEF GLOBAL WEF GLOBAL COMPETITIVENESS REPORTCOMPETITIVENESS REPORT
# respondents = 12, 297 @ various institutions- Australia: 83 - US: 200 - UK: 63- Japan: 148 - Germany: 71 - France: 105
Global competitiveness rating#1: US #2: Switzerland #3: Denmark#4: Sweden #7: Germany #12: UK#16: France #18: Australia #30: China#50: India #51: Russia #62: Hungary
#68: Romania
TRANSPARENCY TRANSPARENCY INTERNATIONAL CORRUPTION INTERNATIONAL CORRUPTION
PERCEPTION INDEX PERCEPTION INDEX
180 countries re: corruption @ 2008 1 to 10 score ADB, AfDB, EIU, World Bank etc. 3 – 10 surveys per country #1: Denmark, Sweden, NZ #4: Singapore
#9: Australia #12: Hong Kong #14:Germany
#16: UK #18: Japan, US
#23: France
ANALYSISANALYSIS 71 countries @ 2008; omissions Property market transparency @ JLL Linkage to 16 economic, social, institutional, technology
competitiveness indicators▪15 @ WEF ▪ 1 @ TI
Global competitiveness InstitutionsInfrastructure MacroeconomyHigher ed. and training Labor market efficiencyTechnology readiness Business sophisticationInnovation Fin. markets sophis.
Foreign ownership Soundness of banks Local stock market regulation Property rights GDP per capita Corruption
LINKAGE ANALYSESLINKAGE ANALYSES
Global (# countries = 71) Regional
- Asia (13) - Europe (31) - Americas (13)- Asia Pacific (17) - Eastern Europe (9) - Middle East (9)
Maturity/transparency- transparent (26) - less transparent (45)
Europe - mature (17) - emerging (14)
Asia - mature (4) - emerging (9) Asia-Pacific
- mature (8) - emerging (9)
Correlations; step-wise regression re: identify key factors
Tab
le 2
: T
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Cor
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Model Smallest correlation Largest correlation # correlations # significant
> 0.50 correlations
Global (71) 0.32 .85 (technology) 94% (15/16) 100% (16/16)
Asia (13) 0.54 .90 (financial market sophist.)
100% (16/16) 100% (16/16)
Europe (31) 0.26 .83 (global competit., business sophist.)
81% (13/16) 94% (15/16)
Americas (13) 0.19 .95 (technology) 88% (14/16) 88% (14/16)
Asia-Pacific (17) 0.43 .92 (corruption) 94% (15/16) 94% (15/16)
Eastern Europe (9) 0.01 .61 (macroeconomy) 6% (1/16) 6% (1/16)
Middle East (9) 0.01 .79 (securities market regulations)
38% (6/16) 19% (3/16)
Model Smallest correlation
Largest correlation # correlations # significant
> 0.50 correlations
Transparent (26) 0.29 .70 (financial market sophist.)
56% (9/16) 75% (12/16)
Less transparent (45) 0.19 .71 (higher education & training)
25% (4/16) 75% (12/16)
Europe: mature (17) 0.18 .71 (financial market sophist., technology)
88% (14/16) 88% (14/16)
Europe: emerging (14) 0.23 .59 (higher education & training)
19% (3/16) 19% (3/16)
Asia-Pacific: mature (8) 0.04 .86 (banks) 56% (9/16) 44% (7/16)
Asia: mature (4)
Asia: emerging (9)
0.37
0.05
.99 (foreign ownership)
.87 (business sophist.)
75% (12/16)
88% (14/16)
50% (8/16)
75% (12/16)
Tab
le 2
: T
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Model Smallest correlation
Largest correlation # correlations # significant
> 0.50 correlations
Americas: emerging (11) 0.21 .69 (global competit.) 50% (8/16) 44% (7/16)
JLL: highly transparent (10) 0.02 .70 (foreign ownership)
6% (1/16) 6% (1/16)
JLL: transparent (16) 0.03 .73 (banks) 63% (10/16) 75% (12/16)
JLL: semi-transparent (21) 0.02 .40 (GDP per capita) 0% (0/16) 0% (0/16)
JLL: low transparency/opaque (24)
0.12 .74 (securities market regulations)
44% (7/16) 63% (10/16)
Tab
le 2
: T
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Model Variables included Adj. R²
Global (71) Financial sophistication, higher education & training, macroeconomy
0.77
Asia (13) Financial sophistication, corruption 0.87
Europe (31) Technology 0.69
Americas (13) Technology 0.90
Asia-Pacific (17)Eastern Europe (9)
Middle East (9)
Global competitiveness, banks, corruption
Macroeconomy
Securities market regulation
0.93
0.28
0.57
Tab
le 3
: Ste
p-w
ise
regr
essi
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naly
sis:
key
fac
tors
Model Variables included Adj. R²
Transparent (26) Financial sophistication 0.47
Less transparent (45) Higher education & training, banks, institutions
0.59
Europe: mature (17) Financial sophistication, market efficiency, technology
0.79
Europe: emerging (14) Higher education & training 0.29
Asia-Pacific: mature (8)
Asia: mature (4)
Asia: emerging (9)
Banks, GDP per capita
Foreign ownership
Business sophistication
0.88
0.97
0.72
Tab
le 3
: Ste
p-w
ise
regr
essi
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naly
sis:
key
fact
ors
Model Variables included Adj. R²
Americas: emerging (11) Global competitiveness, institutions 0.65
JLL: highly transparent (10) Financial sophistication, foreign ownership
0.67
JLL: transparent (16) Banks 0.50
JLL: semi-transparent (21) Business sophistication, banks, innovation, foreign ownership
0.73
JLL: low transparency/opaque (24) Securities market regulation 0.52
Tab
le 3
: Ste
p-w
ise
regr
essi
on a
naly
sis:
key
fact
ors
INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONSINVESTMENT IMPLICATIONS
Environment of international property investment re: global financial crisis impact
Focus on property market maturity/transparency Linkages to economic, social, institutional and
technology factors Regional differences Mature Vs. emerging market differences Consistency of linkage indicators?
INTERNATIONAL PROPERTY INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONSINVESTMENT IMPLICATIONS
Future developments re: importance Eg: EPRA emerging markets index @ 2008
- # countries = 22 - # property companies = 124 @ $81 billion
- Thailand, China, Malaysia, Brazil, Russia, Indonesia, India included
- Asia Pacific @ 52%, Americas @ 19%, EMEA @29%
Eg: IPD global property index Eg: IPD country/regional indices
• broader coverage