Real Property Markets The Real Solution to Economic Development

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Real Property MarketsThe Real Solution to
Economic Development

• Bill Endsley
• Manager, Business Development

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Europe Cross-Border Transactions
JonesLangLasalle
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Efficient real estate industry?

• In many developing countries there is often low
  access to real estate finance, markets are
  instable, fragmented, and assets are
  misallocated.
• This results in delayed homeownership,
  incremental building, smaller RE industry
  growth, perceived need for more subsidies, higher
  risk exposure of lenders, sometimes RE bubbles,
  financial and fiscal crisis.

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What distinguishes a good legal property system
is that it is mind friendly. It obtains and
organizes knowledge about recorded assets in
forms we can control. It collects, integrates,
and coordinates not only data on assets and their
potential but also our thoughts about
them.Hernando de SotoThe Mystery of Capital,
p. 218
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Factors needed for Macroeconomic Stability

• Property Rights and Urban Laws
• Clear, enforceable, registered and cessible
  property rights without costly transactions
• (massive size of dead urban assets GDP)
• Economically sound, market sensitive urban
  planning predictable land development codes

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Factors needed for Macroeconomic Stability

• Adequate Financial Infrastructure
• Enforceable collateral
• Foreclosure, public force, non-judiciary, trusts,
  alternative to mortgage, debt recovery
• Professional appraisal services needed for
  healthy mortgage markets and regulations

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Microeconomic Overview

• Employment in the financial services sector in
  the United States as a percentage of total
  employment 11.4
• Employment in the financial services sector in
  Indonesia 0.8
• United Nations 1997

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Property Rights

• Economic growth studies until recently focused
  either on pricing or polices, but not on the
  institutional underpinnings of a functioning
  system.
• Property is closely tied to power and is
  therefore heavily controlled.
• There are clear benefits to a sound property
  rights model.

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Property Rights

• Direct Benefits
• Increase value
• Access to capital
• Investment
• Lower transaction costs
• Improved efficiencies

• Follow-up Benefits
• Economic growth
• Reduced corruption
• Smaller informal sector
• Greater stability
• Broader citizen participation

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Which Deal?

• Formal vs. Informal Systems

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The way forward

• Five critical areas of concern
• Civil Societies
• International Standards
• Education
• Transparency
• Community

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Civil Societies

• Whether in established markets or emerging
  economies, civil societies must widely promote
  the benefits of their activities on markets.
• Established societies must do more to help foster
  civil societies in developing economies.

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Education

• Many countries still lack enough trained valuers
  to apply the generally accepted standard
  methodology of the three approaches to value.
• Market value is one of the cornerstones of the
  IVS, yet many countries still rely heavily on the
  cost approach or land price indexes.

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Transparency

• The reliance on cost basis is due to the lack of
  data market data are scarce due to lack of
  information disclosure and the failure to collect
  systematically transaction data. Therefore, the
  real estate market is not transparent.
• The World Bank

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Recommendations

• More money must be channeled to national and
  transnational civil societies.
• Every effort must be made to support and
  implement International Valuation Standards.
• Greater efforts must be made to educate and train
  an adequate supply of real estate valuation
  professionals.

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Recommendations

• International data standards and systems of data
  sharing must be developed so real property
  markets can become more efficient and
  transparent.
• Real property market players must develop
  transnational ties and a stronger sense of
  community.