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July 15, 2014

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Home » Business » Real Estate Special

Chinese real estate transparency improves

By Cao Qian | July 15, 2014, Tuesday | Print Edition

THE Chinese mainland’s commercial real estate market continued to make some, though limited, progress in transparency over the past two years while Hong Hong remained the most transparent market in China, according to the latest report by international real estate adviser JLL.

The improvement was mainly centered on the country’s primary cities, according to the eighth edition of JLL and LaSalle Investment’s biennial Global Real Estate Transparency report, which monitors the transparency of commercial real estate around the world. More than 80 percent of markets have improved since 2012, with the Asia Pacific region seeing moderate progress.

Real estate markets in China’s Tier I cities were categorized as “semi-transparent” and ranked 35th among the 102 markets surveyed worldwide in the JLL report. They were also among the top 10 Asia Pacific improvers that have seen significant advances in transparency over the past decade. The Chinese mainland market has fared relatively well in investment performance measurement and market fundamentals, partly due to the growing presence of global real estate advisers, the report said.

Progress made over the past two years, however, has been mainly restricted to a few areas such as land use planning and compulsory purchase by a public body, the report found. These have been partly offset by lower scores in taxation consistency and predictability, as well as a decline in the accuracy of data in real estate debt because of the increase in trust lending and debt from shadow banking channels. In areas of structural reforms and regulatory enforcement, slow progress has been made while the gap between Tier I and lower tier cities has slightly widened.

Ironically, the pressure from potential bond defaults in the Chinese mainland real estate sector might lead to greater transparency in the long term as investors are now demanding more information to better assess credit risks in the market. Another area that is moving in a positive direction is the regulatory and legal environment. The national property registry is being implemented on a pilot basis in several Tier II cities, and should help promote a more transparent operating environment for real estate players.

A third area to watch for improvement will be in the listed real estate sector, where the extension of REIT structures should help underpin improving transparency, according to the report.

“We are optimistic that the Chinese mainland will keep making steady progress in real estate industry transparency, especially on the regulatory and legal fronts,” commented Michael Klibaner, head of research, China for JLL. “However, it continues to lag in areas such as transaction process, and its Tier II and III cities still lag behind globally. Regulators and investors will have to watch out for headwinds and volatility in the market.”

Hong Kong, meanwhile, remained the most transparent city in China and ranked fourth in the region after Australia, New Zealand and Singapore. The city is in the top quartile globally in every transparency category (highest for market fundamentals at seventh place globally).

Nevertheless, Hong Kong has seen its transparency score fall marginally since 2012, mainly due to the cooling measures introduced in the commercial and residential real estate sectors, which have lowered tax predictability and reduced tax consistency for foreign buyers. Moreover, Hong Kong scored lower on accounting standards and corporate governance, reflecting both the need for more details in financial reports as well as the slow pace of listed companies’ compliance with the new requirements set in the Corporate Governance Code of the Hong Kong Stock Exchange.

“Hong Kong will maintain its high levels of transparency globally and continue to set the example for cities in the Chinese mainland in the long run,” said Joseph Tsang, managing director at JLL Hong Kong. “However, given that the property market cooling measures will likely stay in place for the foreseeable future, we are concerned that the ongoing uncertainties over tax consistency and predictability will undermine investors’ confidence in the city’s real estate market outlook, and inevitably, deter market activity and affect foreign direct investment as a result.”

Real Estate Special


 

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