Mainland China strides into transparency

JLL and LaSalle’s latest Global Real Estate Transparency Index shows that Shanghai and Beijing have risen to the ‘Transparent’ tier.

July 28, 2020

The Global Real Estate Transparency Index (GRETI), produced jointly by JLL and LaSalle Investment Management, has been tracking real estate transparency since 1999. GRETI has tracked the progress of Mainland China’s leading cities – Shanghai and Beijing – for the past 20 years, as they have moved steadily from the ‘Low Transparency’ category prior to 2006, through ‘Semi-Transparent’ over the 2006-2018 period, to achieving ‘Transparent’ status in the 2020 Index.

Figure 1: Top transparency improvers 2008 – 2020

China – SH/BJ – Shanghai and Beijing
Source: JLL, LaSalle, 2Q20

Shanghai and Beijing have become major destinations for cross-border capital, in which institutional money has helped to improve transparency, increase professionalism and expand access to market data. Testimony to their success? Back in 2006, Shanghai was barely in the top 50 global destinations for real estate capital; today, it appears regularly among the world’s top five cities for cross-border investment.

We have identified six key highlights of Beijing and Shanghai’s performance:

A burgeoning proptech ecosystem covers tech giants and start-ups, developers, contractors, universities and research institutions. COVID-19 reaffirmed the power of proptech, with market participants actively seeking technology applications to ensure safety, health and continuity in their workforces and buildings.

We are witnessing greater adoption of sustainability certification – such as LEED and China’s domestic green building certificate – by developers and landlords. Increasing numbers of office building owners and occupiers have successfully applied for WELL certification focusing on health and well-being.

Land-use planning has grown more transparent, with zoning maps becoming more easily accessible and primary land sales updated frequently in public government databases. Besides, the government planning bureaus are soliciting advice from professional organisations, helping to reduce uncertainty in the planning process.

We have observed a rise in disclosures for listed entities, with many Mainland China developers listing on exchanges in the Mainland, Hong Kong SAR, and the U.S. Disclosure requirements help to shed light on company financials, while potential punishment for noncompliance encourages improved corporate governance.

China’s property management industry is becoming more mature. Growing professional associations have proved valuable channels for disseminating best practices. Property managers have adopted proptech applications to improve relations with customers and better monitor the buildings they manage.

China has seen a significant investment activity in alternative property types such as cold chain, co-living, and data centres. This activity is expected to fuel a virtuous cycle, creating demand for new high-quality data that can improve transparency while also attracting new investors as well.

Shanghai and Beijing still have room to improve. While less of an issue now than 5-10 years ago, capital controls can remain a hurdle for investors. China’s April announcement of a pilot programme for publicly-traded REITs, focusing on infrastructure, is a positive signal that could boost transparency even more if expanded to a wider variety of real estate. In addition, China can continue building on its advances in sustainability transparency and continue improving data availability, particularly in sectors like retail, logistics, and alternatives.

Beijing and Shanghai have made great strides in real estate transparency over the past two decades, and with the right measures, they can continue to climb the ranks. We encourage readers interested in learning more to view the GRETI report, as well as our China-focused paper that discuss the performance of Shanghai, Beijing, and other Mainland China cities in more detail.