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September 6, 2016

Improvements in transparency in global real estate have brought more focus to property as an investment class. But particular attention is flowing to a cluster of Asian real estate markets, for which improved transparency may have significant impacts.

According to JLL’s latest Global Real Estate Transparency Index (GRETI), the most rapid progress in transparency has been made by the 37 markets that make up the ‘Semi-Transparent’ category. A sub-group within this category known as the ‘dynamic Asian mega-cities’ – Shanghai, Seoul and Beijing – have emerged as the group to watch for future investment potential.

According to JLL research, these dynamic Asian Mega Cities accounted for 7.5 percent of investment in the top 30 real estate investment destinations over the past three years. But when you also consider their position within the GRETI, it becomes obvious why these three markets are the ones to watch.

“China’s Tier 1 Alpha cities – i.e. Shanghai and Beijing – have shown the greatest improvements in transparency in the country,” driven by improving market fundamentals, says Jeremy Kelly, JLL Director of Global Research.

“Strong occupier and investor interest in Tier 1 markets has underpinned a rise in demand for real estate data in recent years, and these markets are on the cusp of the ‘Transparent’ tier.”

“Shanghai, in particular, is a city that is fast-tracking to maturity and witnessing a structural uplift in real estate investment, development and corporate activity. It has seen a three-fold increase in real estate investment since 2010.”

The Chinese Tier 1 cities are currently ranked at number 33 on the GRETI, bordering the ‘Transparent’ category. South Korea is currently ranked at 40 on the GRETI – while it is not on the verge of moving into the ‘Transparent’ category like its Chinese counterparts, its current position is somewhat of an aberration.

“South Korea’s position in the GRETI has progressed but, given its economic maturity and real estate investment levels, is an outlier in the ‘Semi-Transparent’ category,” Kelly says.

“In North Asia, advances in market intelligence have contributed to moderate improvements in transparency for South Korea. Robust investor interest, both domestic and foreign, has led to increased demand for real estate information and encouraged more extensive tracking of property sectors by service providers including JLL.”
Of the three cities, Shanghai is likely to be the first to advance to the ‘Transparent’ category within the GRETI, according to Kelly. However, he points out there is also strong interest in improving transparency in South Korea, which could accelerate advances.
What will improved transparency mean for the investment environment in these three dynamic Asian mega cities? The answer to that question may not be so black-and-white.
Kelly points out that the flow of capital into these cities could increase based on improving market fundamentals, alone.

“We could see the flow of capital into these cities increasing. The investment ‘intensity’ – the ratio of investment to GDP – is much lower in these cities than in the likes of London, Paris, New York and Tokyo, and there is clearly room for growth. These cities are still establishing themselves as business and financial centres,” Kelly says.

Furthermore, improving transparency in China’s Tier 1 cities will impact not just Chinese markets, but will have flow-on effects for the entire Asian region.

“As Asia’s largest economy, and given its importance in intra-regional trade and real estate investment flows, China’s economic dynamism is clearly a key influencer on the health of the Asia Pacific economy and real estate markets,” he says.
But Kelly cautions against definitively linking improvements in transparency with buoyed investment prospects. “The link between transparency and investment is not necessarily causal,” Kelly says.

“However, improving levels of transparency are part of a wider package of an improved business environment and investor friendliness. Whether improving transparency pushes increases in investment or whether increased investment means expectations are pushed higher can be debated.”

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Jeremy Kelly

Global Research Director, JLL

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