China real estate market inching towards greater transparency

Asia Pacific marks moderate progress too.

The eighth edition of JLL and LaSalle Investment Management’s biennial Global Real Estate Transparency report shows continued progress in the transparency of commercial real estate around the world, and notes the real estate markets of China as continuing to make progress in transparency.

According to a release from JLL, 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 Transparency report.

The release also said that these markets were also among the top ten Asia Pacific improvers that have seen significant advances in real estate market transparency over the past ten years.

According to the report, China fares relatively well globally in investment performance measurement and market fundamentals, partly attributed to the growing presence of international real estate advisors.

However, the release said that progress since 2012 has been restricted to a few areas such as land use planning and compulsory purchase by a public body.

According to the report, 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, which has suffered from the increase in trust lending and debt from shadow banking channels.

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Meanwhile, China has made slow progress in structural reforms and regulatory enforcement and the gap between Tier I and lower tier cities has slightly widened (China’s Tier II cities ranked 47th and Tier III cities ranked 54th in transparency globally).

Ironically, the pressure from potential bond defaults in China’s 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 thereby help to 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 to underpin improving transparency.

Michael Klibaner, Head of Research, Greater China for JLL, commented, “We are optimistic that China will make steady progress in real estate industry transparency in the future, especially on the regulatory and legal fronts.

However, China 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.”