Latin American Real Estate Transparency Rising
Aug 7th, 2008 by Kevin
Jones Lang LaSalle just released to the public their 2008 Real Estate Transparency Index (free). For anyone interested in foreign real estate, is is a good read and helps you understand the different types of indicators that institutional investors look at when assessing global real estate opportunities. This is a bi-annual report and this is the 5th time JLL has release this report. As an investor in Central America, here were my general take away’s:
- Globally, real estate transparency is on the rise.
- This steady improvement in transparency is closely linked to forces of globalization.
- These forces drive investors to move across borders in search of higher risk-adjusted returns
- They compel multi-national corporations to buy or lease space in lower cost labor markets, or in fast growing countries where they hope to gain market share
- It has created an incentive for governments to streamline bureaucratic practices that prevent foreigners from injecting capital and opening up offices, stores or manufacturing facilities
- 82 markets were surveyed - 26 more than in 2006. The very fact that JLL found it difficult to score these 26 in the past but can now, is indicative of how the markets have opened up to international companies, investors, and service providers
- Nearly one-half (27 out of 56) of the markets surveyed in 2006 demonstrated an improvement in the 2008 report.
- Of the 11 countries surveyed in Latin America Brazil and Panama registered the largest increase in transparency
Many low income countries were unable to have transparency scores calculated because their commercial real estate markets remain undeveloped and largely inaccessible. However a high level of transparency does not eliminate risk or guarantee a strong investment return or an efficient transaction. The sub prime issues in the US are a perfect example even though they tied for second in the overall transparency ranking. Furthermore the report goes on to state that high transparency does not prevent market volatility.
Of the central American countries only Panama and Costa Rica were able to be scored. For investors in these and other central American countries this should not be a deterrent. These countries still offer tremendous investment potential, but it will just take some time before their commercial markets are strong enough in the commercial real estate sector to be part of a survey such as this, and as stated above this is a data point for consideration and not an indicator of investment return.
One interesting thing to note - the report specifically called out Panama and how its scores are greatly improving, and with increased activity in the area. Among the factors cited for this increase I think could and will soon apply to some of its neighbors including Nicaragua:
- The countries central location within the Americas
- Economic and political stability
- Low cost of living
- Favorable climate
Overall, an interesting read, and good food for thought.
