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Real Estate Transparency: Latin America Weak

Chile is best and Dominican Republic worst in Latin America in real estate transparency.

Jones Lang LaSalle

Latin America scores low on the Global Real Estate Transparency Index 2010 from Jones real estate company Lang LaSalle, although there is some progress being made in Brazil and Mexico. Here are the main
Latin America results republished with permission from Jones Lang LaSalle.

Real estate transparency across the Americas showed a distinct slowdown in movement between 2008 and 2010 with a score only marginally better than in 2008. Less improvement has been registered in the Americas than in either Europe or Asia Pacific with every country remaining within its 2008 transparency tier. Canada and the United States have remained the region’s only two Highly-Transparent (Tier 1) countries, and rank among the world’s most transparent markets. The Dominican Republic has the lowest transparency score in the region and is ranked 77th out of 81 markets globally.

A large gulf continues to exist between Canada and the United States and the other countries in the region, as no country in the Americas falls within the Transparent (Tier 2) level. Following the United States (ranked 6th globally), Chile ranks 34th globally and falls within the Semi-Transparent (Tier 3) level—where Brazil, Mexico, Argentina and Costa Rica can also be found.

Panama, Uruguay, Colombia, Peru, Venezuela and the Dominican Republic are characterized by Low-Transparency (Tier 4). Venezuela registered the greatest decline in transparency since 2008 as regulatory and legal changes, including weakened enforceability of contracts, negatively impacted on its overall transparency profile. (…)

Countries in the Americas score the highest in the regulatory and legal category, followed by the transaction process. Having a solid regulatory and legal framework sets up most Latin American countries for future success on other real estate transparency metrics. Many countries in the region still, to a great degree, lack widely-available property market and investment performance data, an issue that continues to hinder transparency for the majority of countries in Central and South America. However, data collection is generally of a lower priority in these markets, where building strong legal and property rights is seen as a higher priority.

Latin American countries score the lowest in the performance measurement category. However, positive developments over the last two years, such as the introduction of real estate security indices in Brazil and the development of a new investment vehicle in Mexico, suggest Latin American scores in performance measurement will improve in time. These new indices and securities are absolutely necessary in the development of performance benchmarks for public and private real estate. Such measures are one hallmark of high levels of transparency in the real estate industry.

Chile stands out for its high transparency score, particularly in the regulatory and legal and transaction process sub-indices. Brazil continues its longer-term improvement in transparency although, like many other countries, its rate of improvement has slowed over the past two years. In particular Brazil has progressed in the performance measurement category due to the recent introduction of real estate securities indices. The region’s second largest economy, Mexico, has experienced very little change in transparency since 2008 with a minimal change in its overall score—it has been one of the hardest-hit economies in the Americas during the global recession. Argentina is again ranked the 4th most transparent country in Latin America but continues to have low scores in performance measurement and market fundamentals.

The outlook for real estate transparency in the Americas is likely to be boosted by the continuing underlying improvement in the economic and business environments of some of the larger Latin American economies. In particular, some of the first forays into private and public indices to benchmark investment performance should lay the foundations for future improvements in transparency across the Americas region. Transparency of market fundamentals is another area in which there is significant scope for improvement in the region. As in other continental regions, a key item to watch over the near-term, in the wake of the global financial crisis and recession, is for any potential impact on transparency through major regulatory change.


No other country within
Latin America is currently commanding as much attention as the large and fast-growing Brazilian economy. Although it has clearly been hit by the global recession, the financial crisis that precipitated it was much less severe there than in most European and North American economies. This is due in part to Brazil’s credit markets which lack maturity and a deep level of interconnectivity to the global capital markets. The credit markets are also still quite undeveloped in terms of commercial real estate lending and, as a result, the country scores poorly in terms of real estate debt transparency. Brazilian banks do not make non-recourse loans to the sector, and the very thin recourse market that does exist is treated by the Central Bank as commercial lending.

Since 2008, Brazil has continued its march toward greater real estate transparency. However, like much of the rest of the world, its improvement has slowed measurably over the last two years. On the regulatory and legal front, transparency has specifically improved regarding local government taxes for both domestic and foreign investors. Furthermore, legislation has been enacted that requires all municipalities to adopt an approved urban master plan and publish a general tax rate table. The country has also made some transparency inroads in the performance measurement category with the creation of a second real estate index based on publicly-traded real estate development and investment firms. Over the medium-term, Brazil is well-positioned to make further improvements to real estate transparency as international investor interest continues to build.


Although Mexico’s transparency score did not improve in 2010, there was a significant improvement in domestic private equity regulations in 2009 that has enabled institutional investors, and in particular local pension funds (Afores), to invest in domestic private equity, including real estate, for the first time. Even though local pension funds are still prevented from direct investment in private equity and venture capital, the possibility of investing in these asset classes through the issuance of Capital Development Certificates (CKDs as its Spanish acronym) is a reality. At the end of Q1 2010 local pension funds had the equivalent of US$97 billion in assets under management and only 1.1% allocated to CKDs. These consisted of four outstanding issues covering infrastructure and financing for small and medium-sized enterprises. Afores can now invest up to 8% of their assets in structured products, an investment category which includes CKDs.

Over time, as more data is collected and the number of CKDs increases, in particular those related to real estate, enhanced information to develop price indices and returns metrics will undoubtedly accrue. Over the next few years Mexico’s transparency score should improve considerably in the performance measurement and listed vehicles categories.


Chile has maintained its position as the most transparent real estate market within Latin America and has made some modest gains since 2008. Despite a relatively small economy, it is the region’s most competitive country according to the World Economic Forum, and has served as a model of political stability and sound policy within Latin America. Chile is also a preferred target in the region among investors, as laws regarding foreign investment are well-defined and transparent and the government’s stance towards non-domestic investment generally stands out as one of the most open in Latin America. Its outperformance of its South and Central American neighbors in terms of transparency is quite evident in the real estate sector, where Chile is rated a Transparent market in the regulatory and legal category, a result of such features as strong institutional safeguards for property rights and identical legal treatment for foreign and national entities. Advances in transparency have also reached as far as the widespread availability, depth and accuracy of real estate related public records at local land registries, where technology improvements have lead to greater access.

The transaction process is another category of real estate transparency where Chile is ahead of its peers in Latin America. Availability and quality of presale information in the bidding and negotiating process itself are, on the whole, considered to be transparent, and only marginally less so than in the United States. Debt markets in Chile are also significantly more transparent than in neighbor countries. The country has rigorous and consistent regulations applied to its debt market via the Superintendent of Banks and Financial Institutions. The country has also continued its movement toward greater transparency in the listed vehicles category. Since 2008, publicly-traded firms have applied the International Financial Reporting Standards, improving transparency for global investors in the country’s equity markets, including real estate firms. Looking forward, the strong foundation that Chile has built over the last 20 years of stability, steady growth, relatively free markets, sound fiscal management, clear regulations and plentiful legal protections will enable it to easily overcome short-term challenges, such as earthquake rebuilding and political transition, to become increasingly transparent and serve as a powerful beacon within Latin America to global investors.



Argentina’s complex political and economic scene sets an interesting backdrop to consider real estate transparency. The country continues to score as a Semi-Transparent market in the lower-third of Tier 3 with transparency remaining somewhat lower than its South American peers, Chile and Brazil.

One area where Argentina trails other high-profile Latin American markets is enforceability of contract. Specifically in real estate, the legal system does not always offer equal protection to both contracted parties as it is generally seen as providing preferential treatment to tenants over landlords. Another category in which its market could improve relates to professional standards for property agents, which do exist, but in an environment where compliance and enforcement is still lacking.

The country performs significantly better, however, in other areas related to both the regulatory and legal, as well as transaction process categories. For example, building and planning codes and availability and accuracy of local land registry information are considered to be largely transparent. Likewise, typical transaction processes involving facilities management and occupier service charges are considered to be substantially more transparent than the bidding and negotiating process in property purchases. Moreover, Argentina has begun to make progress in the transparency of market fundamentals in the residential sector, potentially setting the stage for similar improvement in coming years in the other property sectors.

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