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ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND PROPERTY MARKET TRANSPARENCY

ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND PROPERTY MARKET TRANSPARENCY. PROFESSOR GRAEME NEWELL University of Western Sydney ( g.newell@uws.edu.au ). JUNE 2009. INTERNATIONAL PROPERTY INVESTMENT CONTEXT. Global listed property: $1.0 trillion Global REITs: $361 billion

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ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND PROPERTY MARKET TRANSPARENCY

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  1. ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND PROPERTY MARKET TRANSPARENCY PROFESSOR GRAEME NEWELL University of Western Sydney (g.newell@uws.edu.au) JUNE 2009

  2. INTERNATIONAL PROPERTY INVESTMENT CONTEXT • Global listed property: $1.0 trillion • Global REITs: $361 billion - US:51.1% - Australia: 10.2% - Europe: 21.8% - Asia: 12.4%

  3. INTERNATIONAL PROPERTY INVESTMENT 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%

  4. 2007 GLOBAL PROPERTY TRANSACTIONS Source: Real Capital Analytics

  5. 2008 GLOBAL PROPERTY TRANSACTIONS Source: Real Capital Analytics Source: Real Capital Analytics

  6. INTERNATIONAL PROPERTY INVESTMENT 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

  7. PREVIOUS INTERNATIONAL PROPERTY 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

  8. PREVIOUS INTERNATIONAL PROPERTY 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

  9. PURPOSE 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

  10. METHODOLOGY • Property market transparency: JLL • Economic, social, institutional, technology, competitiveness indicators: WEF, TI • Linkages • 71 countries overall • Data: largely opinion-based surveys - JLL - WEF - TI

  11. JLL REAL ESTATE TRANSPARENCY 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

  12. JLL REAL ESTATE TRANSPARENCY 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

  13. JLL REAL ESTATE TRANSPARENCY 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

  14. REAL ESTATE TRANSPARENCY CLASSIC SCORE ANALYSIS

  15. WEF GLOBAL COMPETITIVENESS 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

  16. WEF GLOBAL COMPETITIVENESS 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

  17. TRANSPARENCY INTERNATIONAL CORRUPTION 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

  18. ANALYSIS • 71 countries @ 2008; omissions • Property market transparency @ JLL • Linkage to 16 economic, social, institutional, technology competitiveness indicators ▪15 @ WEF ▪ 1 @ TI • Global competitiveness Institutions Infrastructure Macroeconomy Higher ed. and training Labor market efficiency Technology readiness Business sophistication Innovation Fin. markets sophis. Foreign ownership Soundness of banks Local stock market regulation Property rights GDP per capita Corruption

  19. LINKAGE 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

  20. Table 2: Correlation analysis

  21. Table 2: Correlation analysis

  22. Table 2: Correlation analysis

  23. Table 3: Step-wise regression analysis: key factors

  24. Table 3: Step-wise regression analysis: key factors

  25. Table 3: Step-wise regression analysis: key factors

  26. INTERNATIONAL PROPERTY INVESTMENT 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?

  27. INTERNATIONAL PROPERTY INVESTMENT 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

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