© Nora Rothacher – ERES 2013 1 Maturity indicators for emerging real estate markets – Exemplified by the comparison of the Tanzanian and South African

© Nora Rothacher – ERES 2013 1

Maturity indicators for emerging real estate markets – Exemplified by the comparison of the Tanzanian and South African property market maturity

Nora Rothacher, Doctoral CandidateIREBS University of Regensburg


I. Background Global Market Indicators, Benchmarking and Indices

II. Introduction of Paper Research

III. Real Estate Market Maturity Paradigm

IV. Strengths/Weaknesses and Opportunities/Threats of the Tanzanian and the South African Real Estate Market

V. Classification of the countries’ property market maturity and economic evolution

VI. Conclusion

AGENDA


Background Global Market Indicators, Benchmarking and Indices

Global Market Indicators – Differentiation to Benchmarking and Indices

• Indexing in general considers companies with similar assets in the peer universe; these peers are therefore exposed to similar risks from a shareholder perspective.

• Goal of indexing– Performance assessment (like e.g. total return) of investment and

asset management activities which exclude the impact of external factors, such as property market cycles

– Informing the property investment process (allocation, selection and management)

Basis for benchmarking

• The primary goal of benchmarking is the enhancement of particular products and processes compared to a benchmark ("best in class").



Global Real Estate Market Indicators for Country Analysis

• IPD global coverage to promote market transparency by providing overall statements of a country’s investment property return, comparing property returns with other assets, identifying trends in major market sectors and segments in each country



Global Real Estate Market Indicators for Country Analysis

• Economical and Business Factors– Country Profile

(Location, Historical Background and Socio-Cultural Environment, Political and governmental framework, Infrastructure)

– Economic and financial environment (Natural resources, Currency, Industries, Export trade, Income and economic growth, Poverty and Private consumption, Inflation, Debt position, Financial institutions/Supervisory authorities, Financial markets)

– Business framework (Legal security, Bureaucracy, Fiscal system, Subsidies, National commercial partners/chambers of commerce)

• Real Estate Market Factors– The rules of the game in the local real estate market

(Market participants and institutions, Transaction process, Residential property market, Commercial property market, User, Return expectations, Lease structures)

– Risks and opportunities in the local real estate market







VI. Conclusion

AGENDA


Introduction Paper Research

Overview

• Sub-Saharan Africa– Diverse geographical, socio-cultural and historical conditions– Different stages of economic evolution and market maturity

Benchmarking tool ‘Market Maturity’ could close gap between investment opportunities and low real estate investment activity

• Research Question– How mature are the real estate markets of Tanzania and South Africa?

• Goal– Objective analysis & comparison of the real estate market activity in

Tanzania and South Africa– Assess the countries position on the global real estate maturity curve– Developing market information in emerging economies


Introduction Paper Research

Methodology

• Framework Property Market Performance:– ‘Market maturity’ on the basis of Keogh and D'Arcy (1994)– Emerging market study by Jones Lang LaSalle (2010)

• The methodological emphasis: o Research of contemporary literatureo Empirical survey

Objective evaluation of theoretical information







VI. Conclusion

AGENDA


Real Estate Market Maturity Paradigm

Maturity Factors

Social factors

Political factors

Legal factors

Institutional factors







VI. Conclusion

AGENDA


Measured Fund logo choice (bottom)

Summary

Sources Tanzania South Africa

Market transparency JLL, American Heritage Foundation, Cushman & Wakefield, Index of Economic Freedom, Doing Business Report,

Not included in the transparency index (comparable to Ghana – 90. rank);Lacks basic investment performance indices;Tedious partnership or business venture process

21. Rank in the Transparency Index;Sufficient real estate networking possibilities;Performance measurement of real estate

Commercial building offer

Hughes & Arisson Formula, Knight Frank, Broll

Stable prime yields (10% in 2012);Around US$ 3 billion REi (13% share of GDPi);Limited high-quality property stock;No freehold titles

Prime yields comparable to value added investments;Over US$ 96 billion REi (31% share of GDPi);Established core stock of various property types;Common land titles exist (Long leasehold or freehold )


Strengths/Weaknesses and Opportunities/Threats of the Tanzanian and the South African Real Estate Market

Investible Commercial Property value

Source: Own Calculations, World Bank

Hughes and Arisson (2005) estimate a country’s investible

commercial property value by:

[1] for developed countries; and

[2] for developing countries

where

country investible commercial value;

country Gross Domestic Product; and

country Gross Domestic Product per capita.


Strengths and Weaknesses of the Tanzanian and the South African Real Estate Market

Selected property market characteristics

Source: Doing Business Report


Measured Fund logo choice (bottom)

Summary

Sources Tanzania South Africa

Connectivity with international capital markets

OECD, IMF, National stock exchange

Limited range of investment vehicles (non-property related debt securities)

Functioning investment market;Diverse range of investment vehicles (listed real estate stocks, funds, debt securities), no REITs

Domestic and international corporate base

Porter, AfDB, World Economic Forum Competitiveness Report

Small corporate base , large informal sector;Corruption

Attractive corporate base (Major MNCs and domestic corporations);Infrastructural problems;Corruption







VI. Conclusion

AGENDA


Classification of the countries’ property market maturity and economic evolutionMaturity potential of real estate markets via a generic life cycle composition







VI. Conclusion

AGENDA


Conclusion

• Great potential in enhancing maturity status in the long-term

• Countries have to expedite reforms and policies (i.e. governance, business, legal and social systems)

• Governments and aid providing institutions have to insist further on the adherence of regulations and democratic elections

• Maturity benchmark of real estate markets - an effective tool to evaluate a specific property market

• Market maturity does not necessarily imply efficiency


Contact details

Nora Rothacher, B.A. [email protected]

The topic is now up for discussion.

Documents

© Nora Rothacher – ERES 2013 1 Maturity indicators for emerging real estate markets – Exemplified by the comparison of the Tanzanian and South African