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The biggest argument in favour of transparency comes from London. In the Global Real Estate Transparency Index 2016 (Greti) by JLL and LaSalle Investment Management, the UK is number one among 109 countries surveyed, while London ranked first on JLL's Global Top 30 cities in direct and cross-border commercial real estate investment by value in three years until 2015.
Craig Plumb, Head of Research at JLL Middle East and North Africa (Mena), tells Property Weekly, ''There is clear evidence that more transparent markets, such as London, attract higher levels of investment into real estate. Investors feel more comfortable with these markets and are able to make more informed investment decisions.''
Ranked 48th overall, Dubai has recorded modest but continued progress and retained its position as the most transparent real estate market in Mena. Abu Dhabi is at number 59, with Saudi Arabia, Egypt and Bahrain occupying the 633rd, 65th and 67th spots respectively.
A factor in the improved ranking is the availability of data from the Dubai Land Department (DLD), enabling investors to easily compare transactions.
''The main improvement in this area is that details of all sales are now published by the DLD, '' says Plumb. ''This is something that certainly was not available to investors back in 2007-08. The value of this data is that it provides investors with an important record of comparable transactions. This is the best means of establishing the true value of the property they are considering.''
However, he adds, ''While details of all sales are now available, the format makes it difficult for investors to analyse trends over time or between different suburbs and this is the next level of improvement.''
Already there are improvements on the horizon, particularly in the areas of environmental, health and safety regulations. ''A more robust and detailed Real Estate Regulatory Agency (Rera) rental calculator is expected within a year,'' says Vismer Mulenga, Associate Director at ValuStrat.
Regulations is an obvious starting point for any market on its quest towards transparency. Philip Sequeira, Senior Associate, Property, at UAE law firm Hadef and Partners, says, ''The DLD has always been proactive in encouraging investors to register their titles. Prior to 2007 many master developers operated their own registry systems and this made for an uncertain market because there could be conflicting information on both registries. The DLD is now the sole registry and this has aided the market by streamlining and coordinating a more robust single database.''
So what are the essentials of a highly transparent market? The index comprises performance measurement indices and valuations, along with data on market fundamentals. It considers governance of listed vehicles, regulatory and legal aspects such as real estate tax, land use planning, building controls, debt regulation and property registration. In the transaction process it includes presale information, bidding processes, professional standards of agents and occupier services.
Mulenga says the biggest contributors to market transparency are well-defined laws, regulations and systems and the ability to access information on market activities such as transactional data in land registry systems. ''For market research purposes, accurate and timely release of official data is vital,'' he says.
Sequeira adds: ''Transparency in any real estate market needs to be underpinned by clear property laws that are sensibly enforced without uncertainty or unreasonable delay, coupled with a robust property registry.''
Availability of titles tops the list of concerns of potential investors. In the UK, with public access to title records, a potential investor can access details of ownership, previous sales and other relevant information.
''The property registry should be publicly searchable and contain all the components relevant to each property, showing clearly the history of ownership, the covenants, restrictions and easements the property is subject to, as well as all mortgage and building consent and permit data to avoid defective or tainted title being traded unwittingly,'' says Sequeira.
Already, some of this information is available to investors in Dubai. ''Some title information is already shared, [such as] date of transaction, location, building name, size of unit and price,'' says Mulenga. ''It's very important to share other useful details, such as unit unique address, number of bedrooms, on which floor it is situated, among others.''
With foreign direct investment a crucial component of many economies, investor-friendly systems that allow easy access to relevant information are necessary.
''Investors may be reluctant to invest in a country where procuring information on real estate title is hindered by bureaucracy, lack of effective or efficient dispute resolution or cumbersome or expensive registration costs and administrative procedures,'' says Sequeira.
While introducing regulations is the first step, it's only effective when it's matched by implementation. ''As in many areas in Dubai, there are detailed laws in place concerning these areas, but the enforcement of these laws is sometimes patchy,'' says Plumb. ''Rather than introducing more laws, efforts should be made to more effectively enforce and regulate the existing laws.''
Specifically, not only does the information need to be available, potential investors, especially those not familiar with the bureaucracy, need to know where to look.
Mulenga says, ''Investors look for user-friendly database management and information systems. This provides them with the freedom to access the data from anywhere and at any point. It supports investors in their decision-making process and also increases their reliability on the overall system in place. The DLD shares its data online in user-friendly formats and it is updated daily. It covers cash and mortgage transactions for ready property as well as a section for off-plan transactions.
''However, the data is so far generic and needs to include drilled-down details of the property transacted.''
For investors purchasing off-plan or under construction projects, regulatory details act as a welcome buffer.
Checks and measures
With the right matrixes, investors can also measure the returns that they can expect. Plumb says the creation of an independent market-wide index of property returns, combining both rental and value components is essential. ''The creation and maintenance of such an index requires owners to disclose data on the financial performance of individual real estate assets and to date they have been unwilling to do this,'' says Plumb.
In Dubai, where the rental market is very dominant, information is sought on this aspect by those in search of yields and to protect the rental market from becoming unsustainable for residents.
Mulenga says, ''Information on rentals is useful in gauging activities of the real estate market. So far, only rental listings can be gathered from secondary providers, requiring advanced data management techniques to cleanse it from discrepancies and outliers.''
Factors related to leasing and registration are more prominent in Dubai compared with some overseas markets where the majority of people own their homes. ''With this market dynamic in mind it is important for Dubai that a strong regulator monitors and enforces rules and regulations between landlords and tenants in an efficient, cost-effective and timely manner to build investor and tenant confidence,'' says Sequeira. ''Dubai has now made it mandatory to register all leases in either Ejari if it is less than 10 years in duration, or on the real property register, if the lease is 10 years or more.''
Lists are good
In Dubai, private company ownership of most real estate is preventing the development of a culture of full disclosure. ''The listed sector has not grown much in recent years in Dubai and this has constrained the improvement in transparency,'' says Plumb. ''There are currently only five listed real estate stocks on the Dubai Financial Market and only one listed real estate trust [Emirates Reit].
''The benefit of listed companies is that they are required by law to publish more detailed accounts and annual reports, those help improve the level of transparency of information in the market. In more transparent markets overseas, the level of ownership by public companies and trusts is far higher, ensuring more data is available in the public realm.''
Checklist for investors by Philip Sequeira, Senior Associate, Hadef and Partners
- It's mandatory for all dispositions of real estate to be registered in the registries maintained by the Dubai Land Department (DLD).
- An investor looking to purchase property should check the title deed issued by the DLD, as well as all relevant background information on the title, including mortgages. It is also important to seek confirmation from the seller on all building permits and other documentation that is relevant to the property or any renovations that need to be undertaken.
- A buyer should check the property's original title deed and also carry out reasonable due diligence enquiries to ensure that the details shown on the deed are correct. This can be done by visiting the DLD along with the seller. A buyer should also check the service charge status of the property with the developer. Also, find time to visit the appropriate licensing authority to ensure that all the required permits and approvals are in place for the original building and/or any additions or renovations that have been made.
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Source: Shalini Seth, Special to Property Weekly