While transparency has increased in most markets in the Middle East and Africa over the past two years, the region continues to experience lower levels of transparency than other parts of the world. This is revealed by Jones Lang LaSalle’s latest Global Real Estate Transparency Index, which was released this week.
This improvement is encouraging because transparency is important to both investors and occupiers of real estate. Put most simply, the more transparent a market is, the more informed decisions can be made and the lower the risk premium.
One of the characteristics of the regional real estate market is the low level of sales to large professional real estate investors or asset managers. These organisations typically referred to as ‘institutional investors’ dominate real estate purchases in many global markets but are relatively underrepresented in our region.
One reason for this is the high-risk premium that these investors apply to assets in MENA to compensate for the relatively poor levels of market transparency. Our research indicates there is a clear positive relationship between transparency and sales activity globally. The more transparent the market, the higher the level of sales activity.Dubai is the most transparent of the 15 markets covered across the Middle East and North Africa, and ranks in the semi-transparent category (at 47 out of the 97 markets covered globally). There are a number of reasons why Dubai scores better.
The relatively well-developed legal and regulatory framework is one factor, with the Real Estate Regulatory Agency being widely acknowledged as the best-in-class real estate regulator in the region. The DIFC is also emerging as the listing vehicle of choice for REIT’s with a number of new investment vehicles having been recently launched or announced.
The other standout market in the region is Lebanon, where the recent strong run of the central Beirut real estate market has resulted in stronger interest among larger and more institutional investors who require higher levels of transparency and information. Stronger lending controls from the Central Bank and the creation of the Real Estate Association of Lebanon have also contributed.
Despite recent instability due to the situation in Syria, Lebanon has seen the greatest improvement in transparency of any MENA market since 2010.
Egypt has the distinction of being the only one of the 97 markets considered globally where transparency levels have deteriorated since 2010. This reversal of fortunes is largely due to the political turmoil that Egypt has experienced over the past two years.
The absence of both a constitution and a working parliament make for a very uncertain backdrop against which many real estate investors and occupiers continue to adopt a wait and see approach.
With MENA continuing to lag other global regions in respect of two important areas, performance measurement and market fundamentals, more does need to be done. There are still no widely available indices of investment performance available in the region and this is a significant disincentive for many global investors.
The lack of accurate market data on demand, supply and other market fundamentals has also been a major factor in creating the oversupply that many sectors of the market are currently experiencing.
Given the recognition of the importance of improving transparency among policy makers keen to attract more foreign investment into the region, we are confident that further forward progress will be made by the time we undertake our next survey in 2014. This will be a positive factor, increasing the attraction of the real estate market in Dubai to both occupiers and investors.