1. ASSESSING THE LINKAGES BETWEEN ECONOMIC COMPETITIVENESS AND PROPERTY MARKET TRANSPARENCY PROFESSOR GRAEME NEWELL University of Western Sydney (g.newell@uws.edu.au)g.newell@uws.edu.au JUNE 2009

2. INTERNATIONAL PROPERTY INVESTMENT CONTEXT Global listed property: $1.0 trillion Global REITs: $361 billion - US:51.1% - Australia: 10.2% - Europe: 21.8%- Asia: 12.4%

3. INTERNATIONAL PROPERTY INVESTMENT ACTIVITY 2007: $1.072 trillion - domestic @68% - cross-border @32% 2008: $517 billion - domestic @69% - cross-border @31% 2008 cross-border investment - US: 9% - Australia: 17% - Europe: 47% - UK: 38% - Germany: 58% - France: 48% - Netherlands: 23% - Italy: 36% - Asia: 27% - China: 25% - Japan: 23% - Singapore: 50%

4. 2007 GLOBAL PROPERTY TRANSACTIONS Source: Real Capital Analytics

5. 2008 GLOBAL PROPERTY TRANSACTIONS Source: Real Capital Analytics

6. INTERNATIONAL PROPERTY INVESTMENT REQUIREMENTS Accurate market and financial information Reliable performance benchmarks Enforceable contracts and property rights Clarity regarding taxation and regulation of property Fair treatment in transaction process Ethical standards amongst professionals hired to transact business Overall: property market transparency is key issue

7. PREVIOUS INTERNATIONAL PROPERTY RESEARCH Portfolio diversification benefits of international property - Bond- Hoesli - Ling Regional diversification benefits; eg: Asia - Bond- Eichholtz Property market convergence/integration; eg: Europe - McAllister- Lizieri - Bardham Property market maturity/transparency - Chin- Brounen - Newell Emerging property markets; eg: Eastern Europe, Africa, South America, Asia - Adair- Lim

8. PREVIOUS INTERNATIONAL PROPERTY RESEARCH Determinants of international property performance - eg: returns, rents - De Wit- Hamelink Next step: link property market maturity/transparency with determinants Newell (2008): 54 countries @ 2006 - regions - mature/emerging - linkages

9. PURPOSE OF PAPER Assess linkages between property market transparency/maturity and various economic, social, institutional and technology competitiveness indicators over 71 countries Identify key linkages/factors: 2008 Compare linkages across regions and for mature/emerging markets Expanded # countries @ 2008

10. METHODOLOGY Property market transparency: JLL Economic, social, institutional, technology, competitiveness indicators: WEF, TI Linkages 71 countries overall Data: largely opinion-based surveys - JLL- WEF- TI

12. JLL REAL ESTATE TRANSPARENCY INDEX 82 countries China, India, Russia @ Tier 1, 2, 3 Real estate transparency index: 1 to 5 Criteria (5); 15 elements assessed availability of investment performance indices availability of market fundamentals data listed vehicle financial disclosure and governance regulatory and legal factors professional and ethical standards Transparency index @ 1999, 2001, 2004, 2006, 2008

13. JLL REAL ESTATE TRANSPARENCY INDEX 5 categories re: real estate transparency highly transparent: 1.00 to 1.49 (10 countries) transparent: 1.50 to 2.49 (16 countries) semi-transparent: 2.50 to 3.49 (25 countries) low transparency: 3.50 to 4.24 (26 countries) opaque: 4.25 to 5.00 (5 countries ) Development of real estate transparency index

14. JLL REAL ESTATE TRANSPARENCY INDEX 2008 improvements Countries: 56 → 82 Tiers 1, 2, 3 @ China, India, Russia Middle East coverage: 3 → 11 Eastern Europe, North Africa coverage Regional sub-indices: 5 per region Composite index Vs classic index

15. Table 1: JLL global real estate transparency index: 2008 Highly transparent: Australia, US, New Zealand, Canada, UK, Hong Kong, Netherlands, Sweden, France, Singapore Transparent: Finland, Germany, South Africa, Denmark, Austria, Ireland, Belgium, Spain, Switzerland, Norway, Italy, Malaysia, Japan, Portugal, Czech Republic, Poland Semi-transparent: Hungary, Israel, Taiwan, South Korea, Slovakia, Chile, Greece, Russia (Tier 1, 2, 3), Philippines, Brazil, Thailand, India (Tier 1, 2), China (Tier 1), Dubai, Bahrain, Bulgaria, Ukraine, Romania Low transparency: China (Tier 1, 2, 3), India (Tier 3), UAE, Costa Rica, Indonesia, Turkey, Peru, Colombia, Argentina, Uruguay, Saudi Arabia, Panama, Vietnam, Abu Dhabi, Qatar, Kazakhstan, Oman Opaque: Belarus, Sudan, Syria, Algeria, Cambodia Source: JLL (2008)

16. REAL ESTATE TRANSPARENCY CLASSIC SCORE ANALYSIS

18. WEF GLOBAL COMPETITIVENESS REPORT 134 countries re: global competitiveness: 2008-09 1 to 7 score; 120 criteria assessed Indicators: categories/sub-categories - global competitiveness -institutions - infrastructure -macroeconomy -health and primary educ. - higher education and training - market efficiency - technology - business sophistication - innovation - environment -basic indicators

19. WEF GLOBAL COMPETITIVENESS REPORT # respondents = 12, 297 @ various institutions - Australia: 83- US: 200- UK: 63 - Japan: 148- Germany: 71- France: 105 Global competitiveness rating #1: US #2: Switzerland #3: Denmark #4: Sweden#7: Germany#12: UK #16: France#18: Australia#30: China #50: India #51: Russia #62: Hungary #68: Romania

20. TRANSPARENCY INTERNATIONAL CORRUPTION PERCEPTION INDEX 180 countries re: corruption @ 2008 1 to 10 score ADB, AfDB, EIU, World Bank etc. 3 – 10 surveys per country #1: Denmark, Sweden, NZ #4: Singapore #9: Australia#12: Hong Kong #14:Germany #16: UK #18: Japan, US #23: France

21. ANALYSIS 71 countries @ 2008; omissions Property market transparency @ JLL Linkage to 16 economic, social, institutional, technology competitiveness indicators ▪ 15 @ WEF ▪ 1 @ TI Global competitiveness Institutions Infrastructure Macroeconomy Higher ed. and training Labor market efficiency Technology readiness Business sophistication Innovation Fin. markets sophis. Foreign ownership Soundness of banks Local stock market regulation Property rights GDP per capita Corruption

22. LINKAGE ANALYSES Global (# countries = 71) Regional - Asia (13) - Europe (31) - Americas (13) - Asia Pacific (17) - Eastern Europe (9) - Middle East (9) Maturity/transparency - transparent (26)- less transparent (45) Europe - mature (17)- emerging (14) Asia - mature (4) - emerging (9) Asia-Pacific - mature (8)- emerging (9) Correlations; step-wise regression re: identify key factors

23. Table 2: Correlation analysis ModelSmallest correlationLargest correlation# correlations# significant > 0.50correlations Global (71)0.32.85 (technology)94% (15/16)100% (16/16) Asia (13)0.54.90 (financial market sophist.) 100% (16/16) Europe (31)0.26.83 (global competit., business sophist.) 81% (13/16)94% (15/16) Americas (13)0.19.95 (technology)88% (14/16) Asia-Pacific (17)0.43.92 (corruption)94% (15/16) Eastern Europe (9)0.01.61 (macroeconomy)6% (1/16) Middle East (9)0.01.79 (securities market regulations) 38% (6/16)19% (3/16)

24. ModelSmallest correlation Largest correlation# correlations# significant > 0.50correlations Transparent (26)0.29.70 (financial market sophist.) 56% (9/16)75% (12/16) Less transparent (45)0.19.71 (higher education & training) 25% (4/16)75% (12/16) Europe: mature (17)0.18.71 (financial market sophist., technology) 88% (14/16) Europe: emerging (14)0.23.59 (higher education & training) 19% (3/16) Asia-Pacific: mature (8)0.04.86 (banks)56% (9/16)44% (7/16) Asia: mature (4) Asia: emerging (9) 0.37 0.05.99 (foreign ownership).87 (business sophist.) 75% (12/16) 88% (14/16) 50% (8/16) 75% (12/16) Table 2: Correlation analysis

25. ModelSmallest correlation Largest correlation# correlations# significant > 0.50correlations Americas: emerging (11)0.21.69 (global competit.)50% (8/16)44% (7/16) JLL: highly transparent (10)0.02.70 (foreign ownership) 6% (1/16) JLL: transparent (16)0.03.73 (banks)63% (10/16)75% (12/16) JLL: semi-transparent (21)0.02.40 (GDP per capita)0% (0/16) JLL: low transparency/opaque (24) 0.12.74 (securities market regulations) 44% (7/16)63% (10/16) Table 2: Correlation analysis

26. ModelVariables includedAdj. R² Global (71)Financial sophistication, higher education & training, macroeconomy 0.77 Asia (13)Financial sophistication, corruption0.87 Europe (31)Technology0.69 Americas (13)Technology0.90 Asia-Pacific (17) Eastern Europe (9) Middle East (9) Global competitiveness, banks, corruption Macroeconomy Securities market regulation 0.93 0.28 0.57 Table 3: Step-wise regression analysis: key factors

27. ModelVariables includedAdj. R² Transparent (26)Financial sophistication0.47 Less transparent (45)Higher education & training, banks, institutions 0.59 Europe: mature (17)Financial sophistication, market efficiency, technology 0.79 Europe: emerging (14)Higher education & training0.29 Asia-Pacific: mature (8) Asia: mature (4) Asia: emerging (9) Banks, GDP per capita Foreign ownership Business sophistication 0.88 0.97 0.72 Table 3: Step-wise regression analysis: key factors

28. ModelVariables includedAdj. R² Americas: emerging (11)Global competitiveness, institutions0.65 JLL: highly transparent (10)Financial sophistication, foreign ownership 0.67 JLL: transparent (16)Banks0.50 JLL: semi-transparent (21)Business sophistication, banks, innovation, foreign ownership 0.73 JLL: low transparency/opaque (24)Securities market regulation0.52 Table 3: Step-wise regression analysis: key factors

29. INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONS Environment of international property investment re: global financial crisis impact Focus on property market maturity/transparency Linkages to economic, social, institutional and technology factors Regional differences Mature Vs. emerging market differences Consistency of linkage indicators?

30. INTERNATIONAL PROPERTY INVESTMENT IMPLICATIONS Future developments re: importance Eg: EPRA emerging markets index @ 2008 - # countries = 22- # property companies = 124 @ $81 billion - Thailand, China, Malaysia, Brazil, Russia, Indonesia, India included - Asia Pacific @ 52%, Americas @ 19%, EMEA @29% Eg: IPD global property index Eg: IPD country/regional indices broader coverage